PNB not to merge IFCI with itself, onus may shift to IDBI

Punjab National Bank (PNB) will not be merging the beleaguered IFCI with itself after the government decided against extending significant financial assistance to enable the process.

IFCI is now likely to be merged with IDBI, the other potential groom shortlisted by the Centre.

A highly placed PNB official said, "The merger has to be passed either at an extraordinary general meeting or at an annual general meeting. With government's holding down to 57 per cent after the second public issue, it will not be possible for it to pass a resolution without the bank's consent."

K C Chakrabarty, executive director of PNB, said, "We are not for a merger with IFCI if the government does not agree to all the riders that we had placed before it. Otherwise the merger would affect the financial health of PNB."

Another official said the financial assistance of Rs 3,000 crore sought for the merger is not fresh funding to take care of the hobbling institution's non-performing assets.

"It was part of a Rs 8,000 crore package announced by the government in the last Budget, out of which Rs 5,000 crore was already pumped in last year," said the official.

PNB chairman S S Kohli had earlier reiterated said the merger would not go through if the Rs 3,000 crore does not come in.

Apart from this amount, the other riders set out by PNB include allowing the takeover of only the good assets of IFCI and transferring the bad assets to an asset reconstruction company.

PNB also sought fiscal incentive in the form of carry forward of IFCI's losses under Section 72A of the Income Tax (IT) Act, and completion of due-diligence of the ailing development finance company.

IFCI has around Rs 20,000 crore of assets, of which as much as Rs 5,000 crore are bad and non-performing, while the rest Rs 11,000 crore are good assets.

The government, in order to do away the requirement of further assistance has agreed to adopt the "good bank-bad bank" model for the proposed merger.

Under this, only the good assets (good bank) of IFCI would be taken over, while the NPAs would be transferred to an asset reconstruction company (ARC).

A major chunk of its bad debts, as decided by the government would be handed over to Asset Care Enterprise Ltd, floated by IFCI along with a few other financial institutions.