The end of 'development' FI

The decision to merge the good assets of IFCI Ltd with Punjab National Bank would bring down the curtains on the concept of 'development' financial institution in India.

While the Parliament has already cleared the conversion of Industrial Development Bank of India into a bank, the third development finance institution -- IIBI Ltd -- is to be merged with IDBI once its converts itself into a bank, ICICI ceased to exist two years ago following a reverse merger with ICICI Bank, India's second largest commercial bank.

IFCI crumbled due to the high level of non-performing assets estimated at over Rs 4,500 crore at the end of last financial year.

Despite a series of restructuring of its debt portfolio and capital infusion by shareholders like State Bank of India, IDBI, LIC and the government, IFCI could not recover.

Following today's decision, IFCI employees would be given the option to opt for a voluntary retirement scheme or go to PNB.

Some of IFCI's assets are expected to be put on the block while sticky assets, amounting to around Rs 6,000 crore, from an asset base of over Rs 21,000 crore at the end of March this year would transferred to an asset reconstruction company.

Asset Care Enterprises Ltd (Ace) is expected to be offered to the shareholders of Asset Reconstruction Corporation of Indian Ltd (Arcil) set up by IDBI, SBI and ICICI Bank. Besides, IFCI and PNB, Bank of Baroda, Life Insurance Corporation are the other stakeholders in Ace.

The IFCI board, which cleared in-principle the merger proposal, is, however, yet to take a view on the future of the institution's subsidiaries like Tourism Finance Corporation and its stake in rating agency Icra.

While stake in Icra is expected to be sold to other shareholders like Moody's Investor Services and PNB, some subsidiaries would be shut down and the remaining would be merged with Punjab National Bank, an IFCI director said.

"These modalities would be worked out in the coming days," he added.

A decision on the retail liabilities of the institution would also be taken in the coming days.

While a decision to prematurely pay some retail deposits like the Millionaire Bonds has already been taken, the fixed deposits are likely to be taken over by PNB. As the corporate investors, the negotiations would follow.

Though many banks and institutions did not evince interest in taking over the first development financial institution, set up in the 1950s, there would, however, be many suitors for IFCI's 18-storied headquarters in Nehru Place, which was constructed only a few years ago, with PNB being one of them.