Indian Banks

Ignoring a government advisory, IDBI Bank has moved to a variable pay structure for its officers, who will now have a 70 per cent fixed salary component.

In the process, it has become the first public sector bank to shift to this structure, while the other banks, that are part of a negotiated wage structure, gave up the plan in the wake of opposition from employee unions.

The move came as a surprise for most IDBI Bank managers, who discovered the shift only after they received their salary for January. The government has also set up a committee, headed by former Bank of Baroda Chairman and Managing Director A K Khandelwal, to review the human resource policies of public sector banks and variable pay is one of the issues being discussed.

The bank has also raised salaries around 20 per cent, three bank executives said.

While IDBI Bank Executive Director (Human Resources) Pramod Sadar Joshi confirmed the variable pay package had been implemented, he did not respond to an e-mailed questionnaire. An IDBI Bank spokesperson said Joshi was tied up with meetings.

Executives said they were surprised the bank had gone ahead and implemented the move, since there was no mechanism in place to measure their performance.

Also, last May the government had written to IDBI Bank to put on hold plans to shift to variable pay and harmonised service conditions, saying the proposals required closer examination. Bank workmen had got a stay, following an intervention by the labour commissioner. Following this, the bank had put its plan to implement a variable pay structure on hold.

IDBI Bank wanted to shift to a uniform pay structure as it had merged three entities to form the present bank. While IDBI, the development financial institution was converted into a bank seven years ago, IDBI Bank and United Western Bank were merged into the new entity. Each entity had a different set of service rules and salary structure and the bank management was trying to harmonise these.

At least two bank executives said the revised salary scheme had been implemented with retrospective effect and the bank would pay arrears over the next few days.

(BS)

Popularity: 1% [?]

State-owned IDBI Bank, which was looking for an acquisition in the private sector , has reportedly identified the Kerala-based lender Federal Bank as its target.

According to a source close to the developments, IDBI has also completed the due diligence on Federal Bank.
However, when contacted, Federal Bank MD and CEO M Venugopal declined to comment on the matter.
The acquisition, if it materialises , would enable IDBI to consolidate its position among state-run banks by strengthening key segments such as branch network, human resources and client acquisition, besides augmenting its deposit base.
With 641 branches, Federal Bank is one of the largest private sector banks in the south with a total business of around Rs 59,000 crore and deposits of Rs 33,000 crore.
Earlier, Federal Bank itself was in talks to acquire the Thrissur-based Catholic Syrian Bank (CBS), though the deal did not materialise.

(Times of India)

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IDBI Bank has tied up with Maurti Suzuki to provide auto finance to the latter’s customers.

Under the tie-up, the bank would provide financing facilities to eligible customers for Maurti Suzuki India Ltd ( MSIL) cars and multi-utility vehicles. The MOU will facilitate prospective customers of MSIL with vehicle finance at attractive terms and  loan facility for MSIL prospective customer is extended up to seven years with maximum funding on ‘on road price’ and faster processing.

Popularity: 3% [?]

Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India (IDBI) was established on July 1, 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country. Although Government shareholding in the Bank came down below 100% following IDBI’s public issue in July 1995, the former continues to be the major shareholder (current shareholding: 52.3%). During the four decades of its existence, IDBI has been instrumental not only in establishing a well-developed, diversified and efficient industrial and institutional structure but also adding a qualitative dimension to the process of industrial development in the country. IDBI has played a pioneering role in fulfilling its mission of promoting industrial growth through financing of medium and long-term projects, in consonance with national plans and priorities. Over the years, IDBI has enlarged its basket of products and services, covering almost the entire spectrum of industrial activities, including manufacturing and services. IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernisation and diversification purposes. In the wake of financial sector reforms unveiled by the government since 1992, IDBI evolved an array of fund and fee-based services with a view to providing an integrated solution to meet the entire demand of financial and corporate advisory requirements of its clients. IDBI also provides indirect financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms.

IDBI has played a pioneering role, particularly in the pre-reform era (1964-91),in catalyzing broad based industrial development in the country in keeping with its Government-ordained ‘development banking’ charter. In pursuance of this mandate, IDBI’s activities transcended the confines of pure long-term lending to industry and encompassed, among others, balanced industrial growth through development of backward areas, modernisation of specific industries, employment generation, entrepreneurship development along with support services for creating a deep and vibrant domestic capital market, including development of apposite institutional framework.

Narasimam committee recommends that IDBI should give up its direct financing functions and concentrate only in promotional and refinancing role. But this recommendation was rejected by the government. Latter RBI constituted a committee under the chairmanship of S.H.Khan to examine the concept of development financing in the changed global challenges. This committee is the first to recommend the concept of universal banking. The committee wanted to the development financial institution to diversify its activity. It recommended to harmonise the role of development financing and banking activities by getting away from the conventional distinction between commercial banking and developmental banking.

In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of Tata Finance Limited in Tata Home finance Ltd., signaling IDBI’s foray into the retail finance sector. The fully-owned housing finance subsidiary has since been renamed ‘IDBI Home finance Limited’. In view of the signal changes in the operating environment, following initiation of reforms since the early nineties, Government of India has decided to transform IDBI into a commercial bank without eschewing its secular development finance obligations. The migration to the new business model of commercial banking, with its gateway to low-cost current, savings bank deposits, would help overcome most of the limitations of the current business model of development finance while simultaneously enabling it to diversify its client/ asset base. Towards this end, the IDB (Transfer of Undertaking and Repeal) Act 2003 was passed by Parliament in December 2003. The Act provides for repeal of IDBI Act, corporatisation of IDBI (with majority Government holding; current share: 58.47%) and transformation into a commercial bank. The provisions of the Act have come into force from July 2, 2004 in terms of a Government Notification to this effect. The Notification facilitated formation, incorporation and registration of Industrial Development Bank of India Ltd. as a company under the Companies Act, 1956 and a deemed Banking Company under the Banking Regulation Act 1949 and helped in obtaining requisite regulatory and statutory clearances, including those from RBI. IDBI would commence banking business in accordance with the provisions of the new Act in addition to the business being transacted under IDBI Act, 1964 from October 1, 2004, the ‘Appointed Date’ notified by the Central Government. IDBI has firmed up the infrastructure, technology platform and reorientation of its human capital to achieve a smooth transition.

IDBI Bank, with which the parent IDBI was merged, was a vibrant new generation Bank. The Pvt Bank was the fastest growing banking company in India. The bank was pioneer in adapting to policy of first mover in tier 2 cities. The Bank also had the least NPA and the highest productivity per employee in the banking industry.

On July 29, 2004, the Board of Directors of IDBI and IDBI Bank accorded in principle approval to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. to be formed incorporated under the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53 of 2003), subject to the approval of shareholders and other regulatory and statutory approvals. A mutually gainful proposition with positive implications for all stakeholders and clients, the merger process is expected to be completed during the current financial year ending March 31, 2005.

The immediate fall out of the merger of IDBI and idbi bank was the exit of employees of idbi bank. The cultures in the two organizations have taken its toll. The IDBI BANK now is in a growing fold. With its retail banking arm expanding further after the merger of United western Bank.

IDBI would continue to provide the extant products and services as part of its development finance role even after its conversion into a banking company. In addition, the new entity would also provide an array of wholesale and retail banking products, designed to suit the specific needs cash flow requirements of corporates and individuals. In particular, IDBI would leverage the strong corporate relationships built up over the years to offer customised and total financial solutions for all corporate business needs, single-window appraisal for term loans and working capital finance, strategic advisory and “hand-holding” support at the implementation phase of projects, among others.

IDBI’s transformation into a commercial bank would provide a gateway to low-cost deposits like Current and Savings Bank Deposits. This would have a positive impact on the Bank’s overall cost of funds and facilitate lending at more competitive rates to its clients. The new entity would offer various retail products, leveraging upon its existing relationship with retail investors under its existing Suvidha Flexi-bond schemes. In the emerging scenario, the new IDBI hopes to realize its mission of positioning itself as a one stop super-shop and most preferred brand for providing total financial and banking solutions to corporates and individuals, capitalising on its intimate knowledge of the Indian industry and client requirements and large retail base on the liability side.

IDBI upholds the highest standards of corporate governance in its operations. The responsibility for maintaining these high standards of governance lies with its Board of Directors. Two Committees of the Board viz. the Executive Committee and the Audit Committee are adequately empowered to monitor implementation of good corporate governance practices and making necessary disclosures within the framework of legal provisions and banking conventions.

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