Mumbai/Hyderabad: Hardly three days after the proposal to merge Global Trust Bank (GTB) with Oriental Bank of Commerce was made, IDBI, the country's largest financial institution, said today (Jul 29, 2004) it will merge IDBI Bank, its private banking arm, with itself in this fiscal.

Soon after approving the merger, Industrial Development Bank of India chairman M Damodaran claimed that the combined entity would reposition itself to become one the largest banks in the country, comparable only with State Bank of India.

"We are now embarking on the journey of merger (of IDBI Bank with IDBI). I think, it will happen in this financial year," Damodaran said after the board meeting.

The IDBI Bank Board today cleared in-principle the merger proposal with its parent, which would transform into a bank following the repeal of IDBI Act.

He said that the two entities would now work out the share swap ratio, complete the valuation and seek shareholders' and regulators' nod.

The new entity would "reposition" itself as a bank that focuses on development financing as mandated in legislation, while offering retail banking facilities, Damodaran said.

Asked whether IDBI would aim at overtaking ICICI Bank, which emerged as the second biggest commercial bank following the reverse merger with ICICI, Damodaran said, "We have decided to use SBI's size as the right benchmark."

"Therefore, anything smaller than SBI is not a good enough benchmark for us," he said adding that the merger of IDBI and IDBI Bank was the first step towards attaining the size and strength that can be comparable with the bigger players.