The government is working on a proposal of a mega merger of country's three leading financial institutions -- the Industrial Development Bank of India, the Industrial Finance Corporation of India, and the Industrial Investment Bank of India.

"We have to find some way of restructuring the financial institutions," Minister of State for Finance Anandrao Adsul said on Friday while confirming that a proposal to merge IDBI, IFCI and IIBI was being considered as one of the options.

Merger proposal of IFCI and IIBI was 'under process,' he said after a book release function of Exim Bank.

He declined to give details about IDBI as the standing committee on finance was in the process of drawing up a report on the financial institution's corporatisation.

The standing committee chairman Janardana Reddy could not be reached for comments. Officials in his office said the matter was confidential and could not be discussed before the report is tabled in Parliament.

Finance Minister Jaswant Singh introduced a bill in the winter session of Parliament to repeal IDBI Act and smoothen out the process of converting it into a universal bank.

But the bill was referred to standing committee on finance for review.

The standing committee had weighed the option of reverse merger of IDBI Bank and IDBI on the lines of ICICI Bank and ICICI. But it was not found to be feasible as the merged entity would not be able to comply with RBI's statutory obligations.

Sources in banking circle now say another option that was being actively considered by the finance ministry was a merger of IDBI and Kolkata-based IIBI.

When contacted, officials of IDBI and IFCI declined to confirm the move.