IDBI Not Enthused With MoF Bid On Asset Merger With IFCI

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Mumbai, September 6:: The ministry of finance’s (MoF) attempts to push forward a proposal for merger of good assets of the Industrial development Bank of India (IDBI) and IFCI Ltd to form a new development financial institution (DFI) does not seem to have gone down well with IDBI’s top brass. Instead, the view emanating is that IFCI itself be converted into an asset reconstruction company (ARC).

IDBI board members are unlikely to give their whole hearted concent to any such move. On the Unit Trust of India’s (UTI) model being sought to be replicated, one of its members said, “What’s good for (UTI) need not be benificial for IDBI and IFCI.”

He added that the so-called good assets may also not be as good. Officials are also concerned that the issue of sustainability of an existing developmental financial institution will still remain unresolved with incremental business becoming difficult to comeby. The merger of assets of IDBI and IFCI will also create problems of exposure norms being flaunted in a large number of sectors as both the FIs have similar portfolios.

For instance, IDBI’s outstanding assistance to the iron and steel sector is 15.2 per cent, which amounts to Rs 7,955.8 crore while that of IFCI is 24 per cent. IFCI’s exposure to the textile sector is 14 per cent while that of IDBI is 9.1 per cent.

Another official had an interesting summation on the issue of merger of assets of the two FIs, “It will only be a merger of two problems, not a solution.” The official added that to evade one difficult situation, “we should not get into another”.

Senior IDBI officials also said that the institution is rather keen to offload its stake in IFCI to any other institution. Any move to club the assets of IFCI and IDBI by the MoF will only impede the transformation of the latter into universal bank. IDBI is currently preparing itself to makeover into a universal bank and has already begun to act on its plans. The FI has taken up securtitisation of assets to meet its statutory liquidity ratio requirements. It has also starterd to clean up its balance sheet.

The Credit Rating and Information Services (Crisil) is also of the opinion that a speedy and smooth implementation of IDBI’s chosen strategy of transformation to and successful operation as a universal bank will determine its future competitive position and will have a significant bearing on its future credit profile.