IFCI to merge with IDBI

FIs have synergy so suitor PNB loses out.

The government has firmed up plans to merge financial institution IFCI Ltd with IDBI, which was recently converted into a bank. The exercise, together with IDBI's takeover of another financial institution, IIBI Ltd, is expected to be completed during the next financial year.

The matter was discussed at a meeting convened by Financial Sector Secretary NS Sisodia on Monday. The meeting was attended by the IDBI and IFCI managements.

"The numbers are being worked out. IDBI will also undertake due diligence and come back to the government with its set of demands to take over IFCI," a finance ministry official told Business Standard. The official added that SBI Caps would undertake a detailed analysis of the loans extended by IFCI.

As per an earlier decision, Punjab National Bank was to take over IFCI and the boards of the two entities had cleared the proposal.

But the move to merge IFCI with IDBI was initiated following requests from several quarters, including IFCI employees. "It was also felt that IFCI had greater synergy with IDBI and the two entities shared a large pool of assets," the official said.

Once SBI Caps submits its report on the state of IFCI's assets, IDBI will put forward its proposals and conditions before the government. The IFCI and IDBI boards will also be required to clear the proposal subsequently.

Officials say if the mergers come through, IDBI will have an asset base of around Rs 66,921 crore, excluding IDBI Bank's assets (Rs 13,002 crore on March 31). Of IDBI's asset base, Rs 9,000 crore will be transferred to the Stressed Assets Stabilisation Fund and another chunk to asset reconstruction companies.

Similarly, IFCI has an asset base of around Rs 15,502 crore, of which around Rs 6,000 crore has been provided for and it is estimated that Rs 2,000 crore will be classified as bad and doubtful.

Of IIBI's assets of Rs 6,000 crore, about 50 per cent can be transferred to asset construction companies. Officials said the move was in line with the government's assurance to keep a development financing focus for IDBI even after it was converted into a bank.