IDBI, IFCI to discuss merger

Finance ministry convenes meeting of entities on Wednesday

The finance ministry has convened a meeting of the managements of the Industrial Development Bank of India (IDBI) and IFCI Ltd on Wednesday to push for a merger of the two entities.

The establishment of the Rs 9,000-crore Stressed Assets Stabilisation Fund (SASF), originally earmarked for IDBI, will also be discussed with IFCI executives.

The IFCI board is meeting on Monday, but executives said the merger was not expected to be discussed.

Earlier this year, the boards of IFCI and Punjab National Bank (PNB) had cleared a proposal to merge the financial institution with IDBI. SBI Caps had been appointed to carry out the due diligence exercise.

Subsequently, the government, which does not have a stake in IFCI, decided to reopen the issue and informally asked IDBI to explore the possibility of taking over IFCI.

IDBI, which is scheduled to take over the Industrial Investment Bank of India in the coming months, is not keen on taking over IFCI. Finance ministry officials were examining the pros and cons of IFCI's merger with PNB and IDBI and now appear to be in favour of a merger with IDBI.

When contacted, IDBI Chairman and Managing Director M Damodaran refused to comment.

IFCI has an asset base of around Rs 18,000 crore and has provided for stressed assets of Rs 6,000 crore. IDBI's asset base is estimated at over Rs 60,000 crore.

The government is yet to appoint trustees to manage the fund. Once the Stressed Assets Stabilisation Fund is set up, the bad assets of IFCI will be transferred to the fund while another chunk of bad and doubtful assets will be transferred to asset reconstruction companies to speed up recovery of non-performing assets. The IDBI management is in the process of identifying the assets which will be transferred to the fund.

Senior government officials said the merger would help in continuing with development financing and only the good assets of IFCI would be transferred to IDBI if the proposal went through.

They, however, added that the government would not decide the details of the merger and would leave it to the managements to take care of the finer points.