After waiting for three years, the government has started working on restructuring IFCI, the country’s oldest financial institution.
The finance ministry has called for bids to appoint a consultant to look at various options for the institution, which has recovered thanks to multiple bailouts from the government.
The consultant will be mandated with the task of suggesting the best possible structure for the institution, including the induction of a strategic investor or merger with a public sector entity or continuing in its current status of a stand alone entity. In addition, the government wants the consultant to suggest ways to safeguard its interests in case of a merger or induction of a strategic investor. While the government is not a shareholder, it holds optionally convertible debentures of Rs 523 crore and has also provided guarantees to the tune of Rs 2,468 crore to the institution.
The advisor will also look at the present business model of IFCI and recommend if the institution should venture into related activities.
In 2007, when IFCI tried to rope in a strategic investor, some of the players had walked out due to a lack of clarity on the extent of government control. The guarantees and the debentures were provided as part of the bailout package to prevent IFCI from defaulting on its debt obligations.
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Following its emergence from the brink of a default in 2001, the institution completely eroded its equity capital and reserves a year later. To avoid any systemic crisis, the government, public sector banks and other financial institutions had worked out a restructuring package in 2002-03, which included a financial assistance of Rs 5,220 crore from 2003 to 2011-12. While approving the restructuring package for financial institutions, including IFCI, the Union Cabinet had asked the finance ministry to review the working of these entities.
In a recent interview to Business Standard, IFCI Chief Executive Officer Atul Kumar Rai had said that the management preferred the financial institution to remain a separate entity and continue with the activities it was undertaking. Aided by a pick-up in economic activity and recovery of bad debts, the Delhi-headquartered entity has turned profitable in recent years.
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