Three years after IDBI became a bank, Yogesh Agarwal, bank's third chairman and managing director in as many years, is trying to put the pieces in place.

After all, as he pointed out in an interview with Business Standard, the erstwhile development financial institution is grappling with a unique situation, where IDBI and the two commercial banks it acquired since 2005 offer loans at different interest rates. Excerpts:

How do you see the current financial year when there is talk of growth rate slowing down, inflation already at a very high level and there is talk of hardening of interest rates?

There was a bit of a slowdown in corporate lending in recent months as there was an expectation that rates will come down. So there are sanctions (for loans), but drawals (disbursal) are not there. Now, when there is no expectation that rates will not decrease, disbursal will take place.

In case of retail loans, the story is completely different as interest rate expectations are not so material. The market thinks that unrealistically high market prices have affected demand. So people are not waiting for interest rates to fall, but for prices to decrease.

The Budget proposals will increase money in the hands of people and encourage people to spend, which will also create some demand for loans.

Why did you put your decision on interest rate cut on hold?

Our rate cut was to be effective 1 April, but with inflation rising, we thought it will not be appropriate to go ahead. We decided to wait and watch what measures are being taken. Because of the sudden change in expectations, it was better to wait.

Integration is not yet complete, though the IDBI Act repeal was effective April 2005. . .

Integration is an issue that has been a dominant mosaic in our thoughts. Though the legal integration is over, there are still three different philosophies that come from IDBI, IDBI Bank and United Western Bank. This cannot go on. No organisation can move forward with three wings with different products, different features, different office timings and even offer different interest rates.

So we decided to integrate the technology, business processes and human resources. We have moved to a common technology platform, reworked our strategy through a system of verticals and we are now working on HR issues.

Effective April 1, seniority and grade mergers have been completed. Now we are working on fresh compensation packages. For IDBI employees, it will be effective November 1, 2007, and for the others it will be April 1.

Will IDBI employees get higher salaries so that they are on a par with their IDBI Bank counterparts?

It's not true. On an average, salary in IDBI is more than that in IDBI Bank. In the private sector, it is cash and carry, for IDBI employees, you need to factor in perks and facilities like housing. We are working on it and I am confident that if at all we will have to protect salaries of 50 top IDBI Bank executives.

After the ICICI merger with ICICI Bank [Get Quote], the new entity saw a tremendous growth. But the same has not been your experience. Were they more aggressive?

ICICI Bank is privately owned and IDBI has public ownership. That makes a huge difference. But it is the business model that is equally important. In our case, it is also a question of timing. If the retail story was strong, we could have stepped up much faster now.

What are the challenges?

There are legacy issues. There are cultural issues on how to convert employee outlook from the development role to get them to compete in the commercial banking sphere. There is a large capital market exposure, which we are trying to reduce. The cost of funds is high and we need to increase the CASA (current account, savings bank accounts) base.

What about capital restructuring and raising more funds?

We are in talks with the government on restructuring and we are looking at both rights issue and a public offer to raise capital, though the capital adequacy ratio is comfortable.