Abstract

IDBI, one of India’s leading Development Financial Institutions (DFI), .merged with IDBI bank, its banking subsidiary, in a move aimed at consolidating businesses across the value chain and realizing economies of scale. IDBI was established on July 1, 1964, under an Act of the Indian Parliament, as a wholly owned subsidiary of the Reserve Bank of India (RBI). It was entrusted with the responsibility of providing credit and other facilities to India’s then developing industry. IDBI Bank, the banking arm of IDBI, was created in September 1994. The case discusses the rationale for IDBI opting for a merger as opposed to other options including financial restructuring. Development financial institutions such as IDBI had become irrelevant with the changing economic scenario in India, and were also commercially unsustainable because of the high cost of funds and vulnerability to asset-liability mismatches. At the same time, there were also disadvantages to the merger. The merger happened on the assumption that the advantages outweighed the disadvantages.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Business restructuring as a means to steer troubled FIs to profitability
• and Pros and Cons of merger of a DFI with a bank

Keywords

IDBI Ltd, IDBI Bank, Indian Banking Industry, Merger, Restructuring, Financial Institutions, Development Financial Institutions, Strategic Business Unit, Development Finance, Capital Markets, Retail Banking, Commercial Banking, Corporate Banking