The Hindu Business Line : No financial assistance package for IFCI suitor

THE Ministry of Finance has ruled out the possibility of extending any large-scale financial assistance to the successful suitor of the ailing IFCI Ltd. The two candidates short-listed for taking over IFCI are IDBI Ltd and Punjab National Bank.

"We do not foresee a need to follow up the merger with any financial assistance. There would, however, be sweeteners in some other form such as regulatory forbearance and tax concessions," a top Finance Ministry official told Business Line.

PNB had recently said that it had sought about Rs 3,000 crore for taking over IFCI. Earlier, IDBI is also understood to have asked for substantial financial assistance to offset IFCI's huge baggage of non-performing assets (NPAs).

To obviate any need for doling out assistance, the Finance Ministry has taken a firm decision to adopt the `good bank'-`bad bank' model for the proposed merger. Under this, only the good assets (good bank) of IFCI would be taken over, while the NPAs would be transferred to asset reconstruction companies (ARC). A major chunk of its bad debts would be handed over to Asset Care Enterprise Ltd, an ARC floated by IFCI along with a few other financial institutions. "We are very clear that only the `good bank' (portfolio of good assets) would be merged with either PNB or IDBI. The `bad bank' would go to ARCs," officials said. He said that a decision on which of the two institutions would eventually take over IFCI would be taken in due course.

In fact, PNB in its red herring prospectus for the forthcoming public issue had explicitly cautioned investors thus: "If IFCI is merged with us without our conditions being accepted, our business and financial condition would be adversely affected." The prospectus also said that the conditions laid down by it included "completion of due diligence, acquisition of only the performing assets of IFCI and several other conditions designed to ensure that the merger does not have an adverse financial or operational impact on us." Backing its demand, PNB had pointed out that as on March 31, 2004, IFCI had gross NPAs of Rs 11,960 crore, while its assets stood at Rs 15,920 crore.

The Government has been looking for a suitable partner for IFCI for some time now. At one point in early 2004 it was virtually certain that PNB would be taking it over with the boards of both IFCI and PNB agreeing to the merger. However, the decision has been delayed due to intense pressure from political and other quarters to merge the institution with IDBI.

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No financial assistance package for IFCI suitor