Sarbajeet K. Sen

New Delhi, March 8

WHILE the Government continues to dither over the roadmap for IFCI, the fate of another ailing financial institution - the Industrial Investment Bank of India (IIBI) - is now sealed.

The Ministry of Finance has taken a decision that sometime early next fiscal IIBI would be merged with Industrial Development Bank of India Ltd (IDBI).

A formal announcement for the merger is likely to come soon after the completion of the ongoing merger process of IDBI Bank with IDBI that is to be completed by March 31.

"IIBI will be merged with IDBI next fiscal. IDBI currently is going through with the merger of IDBI Bank. Once it is complete we will begin the process of merging IIBI with it," senior Finance Ministry officials said.

They said that the Ministry does not apprehend any problem for IDBI taking over IIBI. "IIBI's balance sheet and its staff can be easily absorbed by IDBI," officials said.

The Kolkata-based IIBI was initially set up as the Industrial Reconstruction Bank of India (IRBI) with its primary objective being to help revive sick industrial enterprises. However, due to its limited mandate the operations of the financial institution itself turned unviable with a huge pile of non-performing assets (NPAs) becoming a drag on its financials.

The IIBI management's effort to turn around the institution by aggressively trying to recover NPAs has only resulted in minor improvements, but not enough to make it sustainable.

At one point during the process of drawing up a restructuring proposals for the institution, IIBI had asked the Government for recapitalisation assistance of Rs 500 crore to make it stand on its feet once again.

However, the proposal was quickly turned down with the Government making it clear that merger with another institution was the only alternative.

While the decision on IIBI has been taken, there are also pressures on the Government to merge the New Delhi-based IFCI Ltd with IDBI.

The other alternative under consideration for IFCI is a merger with Punjab National Bank.

(This article was published in the Business Line print edition dated March 9, 2005)
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