Industrial Development Bank of India (IDBI)

Introduction

IDBI Bank is one of the major banks in India. Earlier, it was established as a Development Financial Institution (DFI) to provide long-term financial assistance for industrial development in the country. At present, it functions as a full-fledged commercial bank offering services such as deposits, loans, digital banking, investment services, corporate banking, and retail banking. The bank is mainly owned by the Government of India and Life Insurance Corporation of India (LIC).

IDBI has played a very important role in India’s industrial and financial development. Many major financial institutions of India were developed with the support of IDBI. Today, IDBI Bank is considered one of the important commercial banks in the Indian banking sector.

Establishment of IDBI

The Industrial Development Bank of India was established in 1964 under an Act of Parliament. Initially, it was created as a wholly owned subsidiary of the Reserve Bank of India (RBI). The purpose behind establishing IDBI was to provide long-term financial support to industries and help in industrial growth and economic development in India.

After independence, India needed rapid industrialization. Commercial banks mainly provided short-term loans, but industries required long-term finance for establishing factories, purchasing machinery, modernization, and expansion. Therefore, a special institution like IDBI was established to fulfill these needs.

In 1976, the ownership of IDBI was transferred from RBI to the Government of India. After this transfer, IDBI became the principal financial institution responsible for coordinating industrial financing activities in India.

Development Banking in India

The concept of development banking became important after the Great Depression of the 1930s and the Second World War. Many countries required financial institutions that could provide long-term funds for reconstruction and development activities.

After independence in 1947, India adopted a development-oriented banking system. The Reserve Bank of India focused on expanding banking facilities and supporting economic growth. Commercial banks fulfilled general banking and short-term credit needs, while specialized Development Financial Institutions (DFIs) were established for long-term financing.

Institutions such as IDBI, NABARD, SIDBI, and National Housing Bank were created to support agriculture, industry, housing, and small-scale sectors.

IDBI became one of the most important institutions in promoting industrial growth in India.

Functions and Role of IDBI

IDBI mainly provided long-term financial assistance to industries. It financed new industrial projects known as green-field projects and also supported expansion, modernization, and diversification of existing industries.

The bank provided:

  • Rupee loans
  • Foreign currency loans
  • Refinance facilities
  • Assistance to state-level financial institutions
  • Rediscounting of bills related to machinery sales

IDBI played a pioneering role in India’s industrial development, especially during the pre-reform period from 1964 to 1991. It helped establish several important financial and market institutions in India.

Some important institutions developed with IDBI’s support include:

  • Securities and Exchange Board of India (SEBI)
  • National Stock Exchange of India (NSE)
  • National Securities Depository Limited (NSDL)
  • Exim Bank
  • Small Industries Development Bank of India (SIDBI)

Thus, IDBI contributed significantly to building India’s financial infrastructure.

Public Issue and Financial Reforms

In July 1995, IDBI launched a public issue. After this, the shareholding of the Government of India reduced from 100% to 75%.

During the 1990s, India introduced major financial sector reforms. The government and RBI felt that Development Financial Institutions should diversify their activities and move towards universal banking. A committee formed by RBI recommended that institutions like IDBI should combine development financing with commercial banking activities.

As a result, IDBI gradually transformed itself from a development finance institution into a commercial bank.

Conversion into Commercial Bank

Under the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI became a limited company known as IDBI Ltd.

In September 2004, RBI recognized IDBI as a Scheduled Bank under the RBI Act, 1934. After this, in 2005, the commercial banking arm called IDBI Bank was merged into IDBI.

This merger converted IDBI into a full-fledged commercial bank. After becoming a commercial bank, IDBI started providing normal banking services like:

  • Savings accounts
  • Current accounts
  • Home loans
  • Personal loans
  • Corporate banking services
  • ATM and digital banking facilities

Problems Faced by IDBI Bank

Even after conversion into a commercial bank, IDBI continued focusing heavily on industrial financing. Because of this, its retail banking business remained comparatively weak.

Over time, many loans given to industries became Non-Performing Assets (NPAs). By March 2018, the gross NPAs of IDBI Bank had increased to around ₹55,588 crore, which was nearly 28% of its total loans. This was one of the highest NPA levels among Indian banks.

The bank also faced capital adequacy problems and financial stress. Due to these issues, the Government of India decided to intervene and support the bank.

LIC Takeover and Government Intervention

In 2018, the Government of India asked Life Insurance Corporation of India (LIC) to infuse capital into IDBI Bank.

On 29 June 2018, the Insurance Regulatory and Development Authority of India (IRDAI) allowed LIC to increase its stake in IDBI Bank up to 51%.

In January 2019, LIC acquired 51% controlling stake in the bank by investing around ₹21,624 crore. After LIC became the majority shareholder, RBI reclassified IDBI Bank as a “Private Sector Bank” for regulatory purposes with effect from 21 January 2019.

Although the bank is classified as a private sector bank for regulatory purposes, the Government of India still holds a large share in the bank.

Prompt Corrective Action (PCA)

Due to poor financial condition and high NPAs, IDBI Bank was placed under the Prompt Corrective Action (PCA) framework by RBI.

PCA is a corrective mechanism used by RBI to monitor weak banks and impose restrictions on their activities to improve their financial health.

IDBI Bank worked on reducing NPAs, improving profitability, and strengthening capital position. As a result, on 10 March 2021, the bank successfully came out of the PCA framework.

Acquisition of United Western Bank

In 2006, IDBI Bank acquired United Western Bank in a rescue operation. This acquisition significantly increased IDBI Bank’s branch network.

After the acquisition, the number of branches increased from around 195 to 425. This helped the bank expand its operations across India.

Present Position of IDBI Bank

At present, IDBI Bank is one of the important commercial banks in India. As of July 2025:

  • The aggregate balance sheet size of the bank was around ₹4,11,661 crore.
  • The bank had more than 2,100 branches across India.
  • It operated more than 3,700 ATMs.
  • It also had banking outlets and one overseas branch in Dubai.
  • The bank operates several e-lounges for digital banking services.

As of September 2021:

  • LIC held around 49.24% shareholding.
  • Government of India held around 45.48% shareholding.

Thus, LIC remains the controlling shareholder of the bank.

Employees and Human Resources

As of September 2023, IDBI Bank had around 18,283 employees, including employees with disabilities. The average age of employees was around 34 years.

The bank reported strong business productivity per employee and improved operational efficiency after financial restructuring.

IDBI Intech Ltd.

IDBI Intech Ltd. is a wholly owned subsidiary of IDBI Bank established in March 2000. Its headquarters is located in Navi Mumbai.

The company provides:

  • IT consulting services
  • System integration
  • Software products
  • Outsourcing services
  • Data center management
  • IT support and training

It mainly provides technology solutions to banking and financial institutions. The company has received ISO certification and security auditing certification from CERT-In.

Awards and Recognitions

IDBI Bank has received several awards and recognitions over the years. It ranked among the Forbes Global 2000 companies in 2013.

The bank also received:

  • “Overall Best Bank” award
  • “Best Public Sector Bank” award
  • Banking technology awards for Business Intelligence and Risk Management

These awards recognized the bank’s performance and technological improvements.

COVID-19 Moratorium Controversy

During the COVID-19 pandemic, IDBI Bank implemented an automatic moratorium on loan accounts. Under this system, customers automatically received repayment relief unless they specifically opted out through email.

This policy became controversial because many customers felt that the moratorium should not have been applied without prior customer consent.

Conclusion

IDBI Bank has undergone major transformation since its establishment in 1964. It started as a development financial institution dedicated to industrial growth and later transformed into a commercial bank. Despite facing serious challenges such as high NPAs and financial stress, the bank recovered with the support of LIC and the Government of India.

IDBI played an important role in India’s industrialization and helped establish several major financial institutions. Today, it continues to serve as an important part of the Indian banking and financial system.