In order to maintain a development-oriented focus for Industrial Development Bank of India post corporatisation, the government is planning to restrict the institution's lending to only large industrial borrowers and not permit it to lend to the retail sector or let it offer current account and savings bank facilities.

According to an action plan worked out by the finance ministry, which envisages IDBI to operate on a stand alone basis without a merger with a bank, the development financial institution will not be a universal bank in the true sense, officials told Business Standard.

"It will be able to accept deposits of all maturities but won't issue cheque books," explained an official.

In case of a reverse merger with IDBI Bank, however, the new entity will operate like any other bank. Officials said the finance ministry was not very keen on a reverse merger.

"We have worked out various scenarios and this is option one of them. A final decision will be taken after the (Parliamentary) standing committee on finance submits its report," a senior government official said.

Officials said that corporatisation through a repeal of the IDBI Act will help the institution borrow funds with short term maturities and that will help in reducing its borrowing costs which will make it more competitive while lending.

They added that the government was of the opinion that development financing was still essential for improving investment in India. "If we permit IDBI to lend short term the scenario will be similar to that of ICICI Bank which is focussing more on retail than large loans," said an official.

Officials also said that before the institution in corporatised and turned into a banking company, a large chunk of the bad assets will be transferred to asset reconstruction corporations which would help it clean its balance sheet.

A similar exercise will also be undertaken by Industrial Investment Bank of India which is proposed to be merged with IDBI once the repeal bill is cleared by Parliament.

Officials said that the future of IFCI Ltd will be dependent on IDBI restructuring. "We will decide on the structure for IFCI factoring in the model that will be put in place for IDBI," an official said.