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IDBI mandates BCG for universal banking strategy

NetScribes/Anil Varma

Industrial Development Bank of India has mandated the Boston Consulting Group for drawing a detailed strategy for the term-lending institution's metamorphosis into a universal bank, senior IDBI officials told NetScribes.

The mandate was awarded to BCG in mid-April. BCG was chosen from a list of five leading consulting firms from around the world including McKinsey and Co and Arthur Andersen.

"BCG has been chosen by the IDBI board after an evaluation process that has lasted months," an official said. "The process (of formulating the universal banking strategy) is on now."

The new strategy is aimed at reviewing the entire business perspective of the institution and giving it the sharper competitive edge required to take on future competition.

The US-based consulting group is expected to devise a strategy that will equip IDBI's existing businesses to meet future challenges, the official said.

Also, BCG is to spot new business areas and new products for IDBI that hold promising future business potential. The fundamental changes expected in IDBI's business perspective may in turn require alterations in the regulatory framework for the institution itself, according to the official.

At present, the IDBI falls under a special regulatory act called the IDBI Act, and is not accountable to either Banking Regulations Act or the Companies Act.

"Fundamental changes are likely because we can't go on competing in the marketplace and at the same time be a development financial institution, without feeling the impact on our balance sheet," the official said. "Our cost of funds is too high, when compared to bank which are allowed to take deposits."

"The choices are two, basically," the official said. "IDBI can either become a full-fledged commercial bank, or it can become a non-banking finance company."

This mandate to BCG is seen as a significant fresh initiative on the part of the development financial institution, after a yearlong spell of lethargy. The IDBI Board had taken up a report by M B Athreya with similar aims in late 1999, but subsequently decided "the resources of a globally experienced consultant were required to prepare the roadmap to universal banking."

BCG is expected forward its proposal to IDBI board later this year. "Later this year, we should be in a position to see our future direction," the official said.

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