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Change in IFCI-PNB merger plan ruled out

Sarbajeet K. Sen

New Delhi , June 2

THE change of Government at the Centre would not lead to any alteration of plans for the merger of IFCI Ltd with Punjab National Bank (PNB). Top Government official said that the merger plans would go on as usual, even as the IFCI Board of Directors on Wednesday held its first meeting after the United Progressive Alliance (UPA) Government took charge.

"There is absolutely no change in the Government's plans for IFCI's merger with PNB," a senior Finance Ministry official said while describing the today's Board meeting as "routine."

He said that besides other items on the agenda, the IFCI Board took presentations from SBI Capital Markets, which has been appointed to do the valuation of the institution, on the progress of the due-diligence exercise being conducted by them.

There had been intense speculation in various quarters that the new Government might prefer to have a re-look at the ongoing merger process that was initiated during the National Democratic Alliance (NDA) rule.

In fact, pressures had been applied on the NDA Government itself by the IFCI staff and also a section of politicians to have the IFCI-PNB merger scuttled. There had been suggestions that the Government should instead make the ailing IFCI as part of a four-way mega-merger of financial institutions including the Industrial Development Bank of India (IDBI), Infrastructure Development Finance Corporation (IDFC) and Industrial Investment Bank of India (IIBI).

The Government had taken the decision to go for a merger of IFCI with a big bank since it felt that there was no hope for a turnaround of the institution as a stand-alone basis and since there was no other strong development financial institution in sight that could take on the burden.

IFCI had been registering heavy losses for several years and had also become a drag on the Government. On several occasions in the past few years, the Government had to come to the rescue of the institution by infusing capital to keep its afloat and to finance it to repay its liabilities.

The plan to merge the institution with PNB was taken in late January after which the Government had appointed SBI Caps to do the valuation for the merger. However, there had been uncertainties on the legal front with the Government initially unsure under which law proceed since there were no precedents of a merger of a financial institution with a public sector bank.

However, it now appears that the legal opinion favours that the merger should be proceeded with under the Companies Act.

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