Finmin eyes ordinance for IFCI loss transfer

The finance ministry is considering an ordinance to provide for transfer of IFCI losses to Punjab National Bank ( PNB) to facilitate the merger between them.

Senior government officials told Business Standard that the government was planning to amend section 72a of the Income Tax Act through the ordinance. Analysts said that the resulting tax benefit would make IFCI an attractive proposition for PNB.

They added that the swap ratio could be bolstered for the merger by profit making IFCI subsidiaries. Most of the IFCI subsidiaries including ICRA, Tourism Financial Corporation and I-Fin are profit making ventures.

At present, the tax benefit is available for merger between two banks but does not cover the merger of a financial institution with a bank.

Meanwhile, IFCI has decided to negotiate with provident funds, regional rural banks and co-operative banks to reduce the interest rates on bonds issued by it, which at present is 12.5 per cent per annum.

The total exposure of provident funds is estimated at Rs 600 crore, IFCI executive director R M Malla said at a press conference on Saturday.

Terming the proposed merger as a 'win-win' situation for both the entities, V P Singh, the outgoing IFCI chairman said this was the best option since the government had the constraints of not being the able to pump in funds every year and IFCI was unable find a strategic partner till now.

Singh said that IFCI could bring the skill and expertise of investment banking to PNB.

Global consultant McKinsey had suggested that liquidation was not an option for IFCI as its cost would have been much higher, Singh said quoting the consultant's report submitted last year.

He also said that IFCI would launch another voluntary retirement scheme to restructure its manpower before the entity is merged with PNB by the end of this fiscal.