Government is considering conversion of the country's biggest financial institution, IDBI, into a bank, Minister of State for Finance Anandrao Adsul said on Monday.

"We are considering IDBI restructuring and its conversion into a bank," Adsul told reporters on the sidelines of a memorandum of understanding signing ceremony of Vijaya Bank and National Insurance Company.

Government had introduced a bill to repeal the IDBI Act and conversion of IDBI into a bank. The standing committee on finance is in favour of this proposal, Adsul said.

However, IDBI would continue with its developmental financing, he said.

Adsul did not clarify whether IDBI would be merged with its private banking arm, IDBI Bank.

He also said that merger proposals of IIBI and IFCI were being considered, as part of their restructuring process.

Government was considering an option to merge IDBI, Industrial Investment Bank of India and Industrial Finance Corporation of India.

Another option was the merger of IDBI and IIBI while finding a public sector bank for taking over IFCI.

Adsul said the government was considering hiking the foreign direct investment limit for banks but there was no immediate proposal for such a hike in sectoral cap for the insurance sector.

Finance Minister Jaswant Singh had announced in the Budget this year that the sectoral cap for private banks should be raised to at least 74 per cent.

The N K Singh committee on foreign direct investment had earlier proposed hike in insurance cap to 49 per cent from the present 26 per cent.