Idbi, Ifci Good Assets May Be Merged

The government is exploring the possibility of creating a new Rs 62,000 crore development financial institution by merging the good assets of Industrial Development Bank of India and IFCI Ltd.

The sub-standard and doubtful assets of the two institutions would be transferred to an asset reconstruction company (ARC), according to a proposal being discussed in the government.

This is one of the options under the government's consideration to revitalise the two financial institutions. A final decision is expected to be taken in the next few weeks.

The merger model, if adopted, will be on the lines of the Unit Trust of India bifurcation plan where the NAV-linked schemes are to be transferred to a new entity called UTI-II while another entity called UTI-I would manage US-64 and other assured returns schemes.

When contacted, IFCI chairman and managing director VP Singh said that he was not aware of such a move. "We have only forwarded a copy of the McKinsey report to the government and it is for the government to decide what is to be done," he said.

McKinsey, which had been hired as a consultant by IFCI to prepare a revival blueprint, had recommended two options to revitalise India's oldest development financial institution. The first option was to merge IFCI with an entity that was transforming into a universal bank.

However, much before McKinsey was even hired, a plan to merge IFCI with IDBI was discussed last year at a meeting convened by the then banking secretary Devi Dayal but IDBI turned down the proposal.

The second option suggested by McKinsey was to split IFCI into two - a good bank and a bad bank. While the bad bank was to take over all the non-performing assets of IFCI accounting for over 22 per cent of its asset base of Rs 17,547 crore at the end of March this year, the good bank with an asset base of Rs 13,650 crore would cater to small and medium enterprises and also undertake more fee-based activities.

IDBI, on the other hand, had an asset base of Rs 56,477 crore at the end of March 2002 of which Rs 48,107 crore were classified as standard assets with sub-standard and doubtful assets amounting to Rs 8,370 crore.

The IFCI board, however, opted for the good bank and bad bank model suggested by McKinsey and set up an ARC called Asset Care Enterprises (Ace) with an authorised capital of Rs 20 crore. IDBI, on the other hand, is one of the co-promoters of Asset Reconstruction Company (India) Ltd which was set up recently at the behest of the Centre with an initial equity base of Rs 10 crore.