PNB wants Rs 3000 cr for IFCI merger

Punjab National Bank (PNB) will merge loss-making Industrial Finance Corporation of India (IFCI) with itself only if the government infuses Rs 3,000 crore into the latter and allows it to carry forward losses.

"We received a letter from the government in January this year to merge IFCI with PNB. We would not agree to the government's proposal if it does not accept the riders that we have set to make the merger a successful one," said S S Kohli, chairman and managing director PNB in Kolkata today.

"Although we have made our views known to them, we are yet to receive any feedback," he said.

The riders set by PNB include the infusion of Rs 3,000 crore for writing off the bad assets, allowing PNB to take over only the good assets while transferring the bad ones to an asset reconstruction company before takeover, a fiscal incentive in the form of allowing carry forward of the losses of IFCI under Section 72A of the Income Tax (IT) Act, and the completion of due-diligence of the ailing development finance company.

"IFC has around Rs 20,000 crore of assets of which as much as Rs 5,000 crore are bad or non-performing. The infusion of Rs 3,000 crore will allow us to take care of the non-performing assets because the government has already infused around Rs 5,000 crore some time back," Kohli said.

"The Rs 3,000 crore sought is not a fresh funding that we are seeking. It was part of the government's announcement in the last Budget to help the IFCI return to the tracks. We would take over IFCI only after this fund has been released by the government," he explained.

Meanwhile, PNB in its Red Herring Prospectus has warned that if the loss-making IFCI was merged with the bank without PNB's conditions being accepted, its financial situation would be adversely affected.

According to the offer document, these conditions and several other conditions were designed to ensure that the merger does not have an adverse financial or operational impact on the bank.

As on March 31, 2004, IFCI had Rs 15,920 crore in assets, Rs 1,100 crore in total income, Rs 3,230 crore in loss after provisions and extraordinary items and Rs 11,960 crore gross non-performing assets.