Case Code : CLBS065
Publication date : 2009
Subject : Business Strategy
Industry : Banking
Length : 08 Pages
Price : Rs. 100
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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
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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.
Questions for Discussion:
1. Critically examine the business restructuring strategy adopted by Investment Development Bank of India (IDBI) to ensure its survival and improve competitiveness.
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