SBI may float core sector funding firm

Govt fights to contain IDFC blaze.

Stung by the revolt of the top management of Infrastructure Development Finance Company (IDFC), the finance ministry is exploring all possibilities of finding an amicable solution.

A section of bureaucrats in North Block said off the record the government was weighing three options: continuing with IDFC as a professionally run outfit under the present management with the State Bank of India (SBI) holding the largest stake; allowing SBI to take over management control; and floating another core sector financing outfit.

The strongest suggestion is that the stake of the government (20 per cent) as well as that of the Reserve Bank of India (15 per cent) in IDFC be divested and the money used to float a new outfit along with SBI, Life Insurance Corporation and ICICI Bank for core sector financing.

"This can be a solution if the impasse is not broken. After all, the issue is core sector financing. We feel IDFC has not done its job well. If there is another outfit for infrastructure funding, there will be competition and borrowers will benefit," said a source seeking anonymity.

One thing is certain: the mass resignation by the IDFC management will slow down the government's plan for repositioning the company.

One section of the promoters of IDFC feels it can be sent into the State Bank fold without disturbing its management and professional culture. "SBI's credit card and insurance arms run professionally, with full autonomy. The IDFC management should not have any problem there," said a source with one of the promoters of IDFC.

SBI is keen that Deepak Parekh remains IDFC chairman but it wants a senior SBI executive to be the managing director replacing Nasser Munjee, IDFC's current CEO. It is not averse to the idea of retaining the rest of the top management.

When contacted, Parekh declined to comment. "All I can say is that the board will take stock of the situation on April 20 when it meets to finalise the accounts. Infrastructure financing is a crying need and we must find some solution," he said. On being asked whether he, too, would like to quit, Parekh said, "I don't have any such plan now."

SBI Chairman AK Purwar refused to be drawn into the issue. "It is up to the government to take a decision. I have no comment to offer," he said.

SBI's infrastructure loan portfolio, including guarantees, is over Rs 20,000 crore, over four times IDFC's loan book.

The finance ministry initially toyed with the idea of merging IDFC with Industrial Development Bank of India (IDBI). However, that did not favour with the Prime Minister's Office. Later, it was decided that the combined 35 per cent stake of the Centre and RBI could be transferred to SBI, making it the largest shareholder (41 per cent stake) with management control. "If the need arises SBI can even buy out the foreign stakeholders," a source pointed out.

The situation now is very fluid and all quarters are trying to play down the controversy to buy time.

While government sources insist that IDFC has not performed, a senior executive with IDFC stoutly defends the management, saying: "Show me one infrastructure project that approached us and we did not fund it. The problem is there have not been too many projects."

Shareholder pact in the way

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• IDFC's shareholder agreement requires the RBI along with the Centre and IDBI "" the sponsors of the company "" to hold a 40 per cent stake in the company. An IPO is also prescribed in the sixth year of IDFC's operations.
• Late last year, the government had asked the IDFC management to defer its IPO, which was lined up for 2004.
• Transferring the RBI stake to SBI will need an amendment to the shareholder's agreement. This will require approval of foreign stakeholders in the company. They are supporting the stand taken by the IDFC management.