"We will shortly decide on resolving the predicaments over having an alliance with a commercial bank in the presence of our banking subsidiary IDBI Bank," IDBI chairman and managing director GP Gupta said.

"For the future growth of IDBI and for raising cheaper funds, there is a need to tie up with a bank which has a much bigger retail reach than us," Gupta said.

IDBI was considering a tie-up, necessarily involving acquisition of equity stake, with a bank with good retail reach and finally merging it with itself, he said.

"Ultimately we have to move to universal banking, and for this purpose it is absolutely necessary to have such kind of a partnership," Gupta said.

"But we have to examine how to build such a relation when IDBI Bank is already there. On its own, IDBI Bank will take quite a while to create a wide enough network. If IDBI has to grow fast, we need to think of other alternatives," he said.

IDBI had initiated talks with Bank of Baroda (BoB) for a partnership on these lines. No decision had been taken on this, Gupta said, adding that FI had not discussed the matter with any other bank yet.

Gupta said a tie-up with a bank would add value to both the partners. The institution would be able to mobilise cheaper funds while the bank can make good application of the project appraisal techniques of the FI.

The idea of taking over a bank is part of IDBI's longterm strategy of transfiguring itself into a universal bank.

IDBI has drawn plans to revamp itself in the areas of business strtegy, resource mobilisation, reduction in non performing assets, human resource development, image building and improvement in shareholders' value.

The institution is planning to effect a reduction of costs in its mobilisation of funds by tapping new market segments, designing innovative instruments and strengthening the existing distribution network.

IDBI has also adopted new approaches in raising short term funds in line with the increase in demand for short term products. The institution recently procured permission from the Reserve Bank of India for raising Rs 500 crore via mibor-linked bonds.