The Hindu Business Line : No clear signals on IFCI merger plans

IFCI Ltd is proving to be too hot to handle even as it counts its last days. With political pressure to rework the merger plans for the institution getting intense, the Ministry of Finance now appears keen to distance itself from the fate that finally awaits the ailing institution.

"IFCI is a company with no direct government shareholding. As such, the merger of financial institutions would be decided by IFCI's board of directors depending on the entity which offers maximum synergy from a merger," the Minister of State for Finance, Mr S.S. Palanimanickam, said in a recent communication to the President of the All-India IFC Employees' Association, Ms Saroj Dubey.

The communication from the Minister, dated July 26, comes in the wake of a series of representations made by Ms Dubey to the Finance Minister, Mr P. Chidambaram, requesting him to reconsider the plans to merger IFCI with PNB. Ms Dubey had instead suggested that the Ministry work on an alternative plan for a merger with IDBI.

Ms Dubey is a senior member of the Rashtriya Janata Dal (RJD), an important constituent of the United Progressive Alliance (UPA) Government. Pressures have also been brought about by senior Left party members to reconsider the planned merger with PNB that was mooted during the National Democratic Alliance (NDA) regime. The boards of both IFCI and PNB approved the merger on January 30, 2004.

Keeping the suspense over the merger plans alive, Mr Palanimanickam has pointed out that the "Government has explored all possible alternatives for maintaining the long-term sustainability of development financial institutions. In this context, the merger of IFCI with other financial institutions and public sector banks has also been considered."

Strongly lobbying against the merger with PNB given the legal and practical difficulties, IFCI employees and officers' associations had argued that the smoother option would be a merger of the institution with IDBI, with which IFCI already shared various elements. Moreover, IDBI itself was going through a phase of transition into a bank and could accommodate IFCI within its fold, it was argued.

Besides reminding that the two institutions not only have common financing and similar work culture, the IFCI associations had also pointed out to the Government that IDBI is a major shareholder in IFCI, having 30 per cent stake. The total shareholding of government-owned institutions is more than 60 per cent. It has also pointed out that about 80 per cent of the loan portfolio of the institutions has been financed jointly.

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