The genesis of "Industrial Development Bank of India Limited" (IDBI Ltd.) can be traced to the establishment of The Industrial Development Bank of India (IDBI), its predecessor entity, in 1964, by an Act of Parliament to provide credit and other facilities for the development of industry. IDBI's charter was later broad-based to also encompass the responsibilities of principal financial institution for co-ordinating the working of National and State-level institutions engaged in financing, promoting and developing industry. Initially set up as a fully-owned subsidiary of the Reserve Bank of India (RBI), the ownership of IDBI was later transferred to the Government of India in 1976. Although Government shareholding in the Bank came down below 100% following IDBI's public issue in July 1995, the former continues to be the major shareholder (current shareholding: 51.4%).

During the four decades of its existence, IDBI has been instrumental not only in establishing a well-developed, diversified and efficient industrial and institutional structure but also adding a qualitative dimension to the process of industrial development in the country. Cumulative assistance sanctioned and disbursed by IDBI since inception up to end-September 2004 aggregated around Rs.2,23,000 crore and Rs 1,78,000 crore respectively. IDBI's asset base stood in the vicinity of Rs. 63,850 crore at end-September 2004.

As a considered response to changes in its operating environment following initiation of reforms since the early nineties and the resultant concerns of IDBI's sustained viability therein in its current avatar, IDBI, in consultation with the Government of India, decided to transform into a commercial bank without eschewing its secular development finance obligations. The migration to the new business model of commercial banking, with its gateway to low-cost current/savings bank deposits, it was felt, would help overcome most of the limitations of the current business model of development finance while simultaneously enabling it to diversify its client/asset base.

Towards this end, the IDBI (Transfer of Undertaking and Repeal) Act 2003 was passed by Parliament on December 16, 2003 and received the President's assent on December 30, 2003. The provisions of the Act came into force from July 2, 2004 in terms of a Government Notification to this effect. The Notification enabled IDBI to obtain the requisite statutory and regulatory approvals, including those from RBI, for conversion into a banking company. The new company viz. "Industrial Development Bank of India Limited" (IDBIL) was incorporated on September 27, 2004 and the Registrar of Companies, Mumbai, issued the certificate for commencement of business to IDBI Ltd. on September 28, 2004. Subsequently, the Central Government notified October 1, 2004 as the 'Appointed Date' and RBI issued the requisite notification on September 30, 2004 incorporating IDBI Ltd. as a 'scheduled bank' under the RBI Act, 1934. Consequently, IDBI, the erstwhile Development Financial Institution of the country, formally entered the portals of banking business as IDBIL from October 1, 2004, over and above the business currently being transacted.

IDBI Ltd. is registered as a company under the Companies Act, 1956 to carry out banking business in accordance with the provisions of the Banking Regulation Act, 1949. The IDBI Repeal Act, 2003 enabled IDBI to become a banking company without the need to obtain a separate banking licence under the Banking Regulation Act, 1949. IDBI Ltd. will enjoy certain regulatory forbearance, including exemption from compliance with SLR requirements (mandated under the Banking Regulation Act) for the first five years. All existing shareholders of the erstwhile IDBI, including the Central Government, have become pro-rata shareholders of IDBI Ltd. from the 'appointed date'. Further, the provisions of the Memorandum and Articles of Association of IDBI Ltd. require that the Central Government, as a shareholder of the Company, shall, at all times, maintain not less than 51% of the issued capital of the company.

The authorized capital of IDBI Ltd, has been reduced to Rs.1250 crore from Rs.1500 crore (the authorized capital of erstwhile IDBI) in conformity with the provision of the Banking Regulation Act. The paid-up capital of the Company, at Rs.653 crore, however, remains the same as the paid-up capital of the erstwhile IDBI.