IDBI is not too keen on transferring the Sidbi holding to the centre as itfeels the government will most likely issue bonds in its favour and no cashtransaction will take place, sources close to the institution said.

Finance minister Yashwant Sinha had in his budget speech announced thatSidbi would be delinked from IDBI and the latter's shareholding in the statefinance corporations would be transferred to Sidbi. This would, in effect,allow Sidbi to become a dominant player in funding small-scale industries.However, Sinha did not spell out the modalities of "delinking" IDBI fromSidbi.

Sources at the institution said that it is in talks with the central bankand is also in the process of working out the share valuation of Sidbi foreffecting the transfer. "The holding will most likely be transferred at bookvalue, though we are looking at a marginal premium," said sources.

The finance minister's budget announcement is in line with therecommendations of the SH Khan Committee on harmonising the role ofdevelopment financial institutions and banks. According to the KhanCommittee report, "As the credit requirements of SSIs are being take care ofby Sidbi since its establishment in 1990, it would be desirable to transferthe present shareholding of IDBI in state finance corporations to Sidbi. Itshould be vested with the overall responsibility for enacting policy andprocedural guidelines with regard to the operations of state financecorporations."

IDBI has an investment of Rs 450 crore in Sidbi and Rs 430 crore in statefinance corporations. The term lending institution is at present the secondlargest shareholder in the state finance corporations with an average stakeof 40-43 per cent in each of them. Sidbi has a net worth of Rs 2,000 croreof which reserves account for Rs 1,114 crore.

The transfer of IDBI's stake in the state finance corporations will makeSidbi strong enough to play the role of a supervisor. However, the delinkingof Sidbi from IDBI and the transfer of the IDBI stake in the state financecorporations will require an amendment of the Sidbi Act.

Sidbi's sanctions during 1997-98 increased to Rs 7,484 crore, an increase of15.4 per cent over the previous year. Disbursements also witnessed a 14.3per cent growth at Rs 5,241 crore during the year ended March 31, 1998.