IDBI sounded out on IFCI takeover

Possible merger to focus on retail banking and development funding.

The finance ministry has asked IDBI to examine the possibility of merging IFCI with it. This is the first formal move by the United Progressive Alliance government to create a mega financial entity which would focus both on retail banking and development funding.

When contacted, a senior finance ministry official told Business Standard, "We have asked IDBI to examine the possibility of merging IFCI with IDBI."

While IDBI had an asset base of Rs 66,921 crore for the 15 month-ended March 2003, the Delhi-headquartered IFCI's asset base stood at Rs 21,741 crore, as on March 31, 2004.

Earlier, Finance Minister P Chidambaram had written to the All-India IFCI Employees' Association in June that the ministry was looking into the matter of merging IFCI with IDBI, and also into the possibility of a merger of IDBI, Industrial Investment Bank of India, IFCI and Infrastructure Development Finance Company (IDFC).

The officials said that the ministry was in principle agreed to a merger of IDBI and IIBI, which had an asset base of about Rs 7,000 crore as on March 31, 2003. They, however, said that IDFC was undertaking a due diligence exercise for an initial public offering.

A merger of IDBI, IFCI and IIBI alone will create a financial behemoth with a total asset base of Rs 100,000 crore. Institutional sources said that the bad assets of IDBI, IIBI and IFCI would need to be transferred to asset reconstruction companies prior to the merger. The IDBI Bank board had only on July 29 approved a merger with its parent, IDBI.

The merger was expected to benefit IDBI since after conversion into a bank, it was keen on starting operations without incurring expenditure on setting up branches, inducting technology or bringing in new people.

A new entity, IDBI Ltd, would become the holding company with two strategic business units "" IDBI, with would function as a development finance company, and IDBI Bank, which would be the retail arm.