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Tuesday, May 5, 1998

Narasimham panel moots IDBI corporatisation 

Our Banking Bureau  
Mumbai, May 4: The Narasimham Committee on Financial System (CFS) has made a strong pitch for corporatisation of the Industrial Development Bank of India (IDBI), the country's largest term lending institution. It is also in favour of removal of tax concessions to IDBI.

The panel has mooted converting the IDBI into a joint stock company under the Companies Act on the lines of ICICI, IFCI and IIAI.

It has also said the IDBI's shareholdings in state finance corporations (SFCs) be transferred to the Small Industries Development Bank of India (Sidbi), the nodal agency for providing refinance to SFCs.

"To give it greater operational autonomy, Sidbi should also be delinked from the IDBI," the report stated.

Referring to the corporatisation of developmental financial institutions (DFIs), it says the issue of hiving off direct lending activities of IDBI needs to be considered anew in the changed environment. "IDBI has set up its own banking company and it now provides not only working capital financing butalso undertakes many other related activities. It would be desirable to corporatise IDBI and make it a joint stock company. Since IDBI has already issued its shares to public, corporatisation of IDBI should not pose difficulties," the Narasimham panel's report said.

It has suggested that once IDBI is corporatised, the refinance function vested with it could be hived off to a separate entity like Sidbi, which should be delinked from IDBI. Incidentally, the Khan committee on harmonising the role and operations of DFIs and banks is in favour of transferring of the IDBI stake in Sidbi to the Reserve Bank of India on the same line as Nabard.

It is also in favour of public listing of stronger SFCs and merger of various state-level lending institutions (SLIs).

It has called for transfer of IDBI stakes in various SLIs to the Sidbi and give nodal/co-ordinating agency status to the latter for financing of small and medium industries.

The Khan committee has said that "following restructuring/re-organisation,strong SFCs could be encouraged to go public by making initial public offers. In the process, the state government's holding in these corporations may be allowed to be brought down to below 50 per cent."

The report has also called for eventual merger of SFCs, SIDCs, and SSIDCs in each state into a single entity.

While this could be the short-term agenda, the immediate objective should be corporatisation of SLIs to improve their competitive efficiency.

On the future ownership, role and status of Sidbi, the Khan committee has said: "Since the credit requirements of small-scale industries are being taken care of by Sidbi, it would be desirable to transfer the present share holding of IDBI in SLIs to Sidbi."

The Narasimham panel is also in favour of pulling down the barriers between commercial banks, financial institutions by encouraging banks to provide term finance and institutions working capital and doing away with the cross-holding of equity and cross representations in the boards of banks andinstitutions.

Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.

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