IFCI may merge with Punjab National Bank

A merger between Punjab National Bank and financial institution IFCI Ltd is in the works with Finance Minister Jaswant Singh setting a deadline of April 1 for the restructuring of development financial institutions.

While Singh did not disclose the bank which would take over the healthy assets of ailing IFCI, finance ministry officials told Business Standard that PNB was the front-runner among banks with which talks had been initiated.

The State Bank of India and Bank of Baroda were the other candidates, while the option to merge the healthy part of IFCI with Industrial Development Bank of India (IDBI) or Life Insurance Corporation (LIC) was also considered.

PNB Chairman and Managing Director SS Kohli refused to comment on the issue and IFCI chairman VP Singh was unavailable. IFCI had an asset base of around Rs 17,000 crore at the end of 2002-03, of which, about a quarter is impaired. PNB had assets worth over Rs 88,000 crore at the end of March 2003.

Announcing the contours of the restructuring, Singh said with Parliamentary approval for Industrial Development Bank of India's conversion into a bank, steps had been initiated by the financial institution to reorient its functioning and prepare its human resources for the emerging challenges.

A proposal to merge the third development financial institution, the Kolkata-headquartered IIBI Ltd, with IDBI has already been cleared by the finance ministry.

Sources said the government was planning to provide some tax sops to IDBI and PNB after the two took over the healthy assets of IIBI and IFCI, respectively.

They said the changes would be brought through amendments to tax laws, which could be in the form of an ordinance.

Singh said the government was planning to promulgate an ordinance to improve the health of FIs.

He, however, did not divulge the details of the proposed ordinance.

The finance minister said IFCI was being restructured through the transfer of its impaired assets to an asset reconstruction company.

The quantum of impaired assets that would be transferred to the ARC could not be ascertained. Officials said the fact that PNB and IFCI had many common assets on their books helped the government decide in favour of a merger between the two entities headquartered in Delhi.