/opt/IBM/db2_10_01/bin/db2ilist shows the instance db2inst1 exists. But, when I try to drop it using /opt/IBM/db2_10_01/instance/db2idrop it gives error:
The specified instance "db2inst1" does not exist. Specify an existing instance name.
How to drop instance in such scenario
This can happen when Db2-instance removal was incorrectly performed, often if directories were manually removed or mount points unavailable etc.
To recover, study this page until you comprehend it.
Become root and run
db2greg -dump
Study its output carefully and ensure you comprehend the output (read the documentation carefully).
You may see the line that identifies the db2inst1 - so carefully verify that each detail matches your expectation and the documentation.
Take a secure backup of the global-registry-file. This is a vital step.
As root, run db2greg without any arguments and study the instructions. Your aim is to run db2greg -delinstrec with some additional options to identify the line to delete, via a comma-separated list of field=value tokens.
For example db2greg -delinstrec instancename=db2inst1,instancepath=... etc.
When db2greg -delinstrec completes successfully (it takes a couple of seconds), you can then run db2ilist and you should find that db2inst1 has disappeared.