In case the conversion takes place, IDBI will be disbursing both large-scale project finance and working-capital loans. Although talks were too pre-mature to discuss a possible merger of the institution with the IDBI Bank, which caters to mid-corporates, analysts said that this could be a possibility if the conversion does come about, provided the legal framework permits it.

The meeting was attended by the IDBI top brass, eminent management consultant Mrityunjay Athreya and four external IDBI directors--Besant Raj (independent consultant), Dipankar Basu (former SBI chairman), Tarun Das (CII director general) and SK Gupta (renownedtechnological consultant).

The possibility of a divestment of government's stake from 74 per cent to 51 per cent and even below 51 per cent also figured in the discussions. Incidentally, divestment of government's stake to the 51 per cent level does not require any amendment to the IDBI Act.

In case these draft proposals find favour with Athreya and subsequently get cleared by the finance ministry and the Reserve Bank of India, the institution may go in for a divestment by way of a strategic sale to an international bank at a negotiated price. IDBI will find it difficult to go public at a time when the scrip was ruling at Rs 34 level against an issue price of Rs 130.

The entire exercise is aimed at IDBI's transition to a new role, given the possibility of ensuing global competition after the WTO provisions come into force next year. While its operations as a bank will bring down its cost of funds, lower government stake will give it the required autonomy to take faster decisions and fix attractiveremuneration scales to hire and retain talent in specialised areas. The institution has witnessed large-scale attrition in recent times.

Earlier in June, six internal groups had made presentations in areas relating to business strategy, HRD issues, resource raising, computerisation. The current exercise has a more focussed approach with five other internal groups concentrating on issues like products and services, corporate image and business profits.

Another plan that has surfaced is to move into takeover financing, receivables financing and fee-based business like advisory services and loan syndications.

The purpose behind IDBI's proposed metamorphosis into a commercial bank is two-fold. One, the Khan Committee and the Narasimhan Committee reports had both recommended universal banking and the Narasimhan Committee even went further and stated that development banks should eventually convert themselves into either non-bank finance companies or commercial banks. The prospect of converting themselvesinto NBFCs does not appeal to financial institutions on account of NBFCs' higher cost of funds, negative image and restricted operations.

That leaves the option of FIs converting themselves into wholesale commercial banks with about 100-200 branches. The conversion would hold out the additional advantage of lowering the cost of funds of these institutions since banks' cost of funds are lower. However, there are worries that the RBI may have apprehensions about corporates not being adequately funded by way of long-term finance after institutions convert themselves into banks.

INSIGHT
Time for a metamorphsis

Asset creation continues to be a major problem with IDBI, and it is increasingly fiding it difficult to find good quality borrowers for project finance. Hence, the DFI has been making noises about becoming a universal bank, getting into short-term trade finance, but little of note has happened beyond the rhetoric. It is in the best interest of the FI that like ICICI it expedites itsconversion into a universal bank. The bank is also plagued with its inability to compete with the private sector while compensating employees, hence quality manpower continues to evade the FI.

-- Aaron Chaze