In its presentation on universal bank to be made before the Parliamentary Standing Committee on Finance on January 27 in New Delhi, IDBI has made it clear that after becoming a commercial bank it would continue to perform the role of development finance institution (DFI). Its business mix would comprise 30-35 per cent of projects and infrastructure financing, 30-35 per cent of corporates for working capital, bill discounting and term loans and balance towards retail financing.
According to IDBI, there would be 150 branches in those centres which cover almost 80 per cent of the deposit base of all the commercial banks in the country. The tentative plan of opening branches would be implemented in a period of three years. The plan envisages opening of 60 branches in the first year including existing 36 offices, 50 new branches in the second year and 40 new branches in the third year.
IDBI has estimated a profit of Rs 350 crore for the first two years after writing off/provisioning sufficiently for the non performing assets (NPAs). IDBIs gross NPAs at March 31, 2002 stood at Rs 14,449 crore or 22.7 per cent of its gross assets. Its net NPAs at March 31, 2002 stood at Rs 6,500 crore or 11.6 per cent of its net assets, even after creating additional provisions of Rs 2,500 crore by writing down reserves. From the third year onwards the profits are expected to increase substantially on account of low costt borrowings, recoveries from NPAs and improved margins in the retail business. IDBI has pointed out that it would seek to replace its maturing liabilities through bank deposits. IDBIs liability maturity pattern based on the balance sheet at March 31, 2002 is as follows: up to one year-Rs 16,452 crore, one to three years-Rs 16,958 crore, three to five years-Rs 13,149 crore and over five years-Rs 20,983 crore. Therefore, assuming that the balance sheet size and maturity pattern on March 31, 2003 are similar, IDBI will need to build a deposit base of Rs 33,000 crore in three years to maintain its existing balance sheet size, it said.
Assuming a retail wholesale deposit mix 60:40 by the end of three years, this would mean IDBI would have to build a retail deposit base of about Rs 19,800 crore in three years. The infrastructure required would be at least 250 branches and about 650 ATMs.
Building a branch network of this size within such a short period and achieving these deposit levels would clearly be a major challenge. The cost of the physical infrastructure alone not including back end technology would be around Rs 300-400 crore, IDBI said. IDBI has argued that DFI model has become unviable and hence it has to adopt a business model which is commercially profitable.
IDBI cannot perform the role of DFI in the present form without continued financial support from the Centre but it can perform this role after becoming a bank. It has assured that its public sector character would not change as there would be no dilution in the shareholding of Government of India.