Industrial Development Bank of India (IDBI) and Unit Trust of India (UTI), set up in 1964 under special Acts of Parliament, were brought to their knees in the nineties by bad management. So, in 2001, the government brought in M. Damodaran as UTI chairman to do the troubleshooting there. Following his success at UTI, in September 2003, he was made chairman of IDBI to get it out of the woods.

Soon afterwards, Parliament repealed the IDBI Act and converted the development financial institution (DFI) into a bank. Nowadays, Damodaran divides his time between the UTI head office in Mumbai's Bandra-Kurla Complex and the IDBI office in Cuffe Parade. UTI is now more or less in order, but a lot remains to be done to nurse IDBI back to health. The grapevine has it that the finance ministry wants Damodaran to focus only on IDBI and would not extend his term at UTI when it ends in January 2005. His term at IDBI is till 2007.

But there is a more compelling reason to keep Damodaran in charge of IDBI alone - Banking Regulation Act, 1949. Following the repeal of the IDBI Act, the erstwhile DFI is now a company within the meaning of the Companies Act, 1956. It is also a banking company under the Banking Regulation Act, 1949. Now, according to Section 10-B (4) of the banking act, a full-time chairman of a bank cannot be a director of any other company. A legal expert points out: "As an existing chairman of a bank cannot be a director of any other company [except subsidiaries], it follows that he cannot be the chairman either."

As UTI is not a subsidiary of IDBI, come January it will most likely need a new head. Any takers?