The Hindu Business Line : IFCI to be split into two — Plan entails segregating good and bad assets

AFTER the recent bifurcation of the erstwhile Unit Trust of India (UTI), it is now the turn of IFCI Ltd to be split into two. As part of its plans for restructuring the financial institutions of the country, the Ministry of Finance has decided that IFCI would be split down the middle by segregating the good assets and the bad assets into two entities.

The restructuring of IFCI, along with that of Industrial Development Bank of India (IDBI) and the Industrial Investment Bank of India (IIBI) is to be completed by June 30.

The plans for restructuring IFCI are on lines with the report that had been submitted by McKinsey & Co. McKinsey had mooted the idea of splitting IFCI into a `good bank', which would contain all the standard assets of the institution, and a `bad bank' that would be saddled with the bad assets. "We have decided to split IFCI into a `good bank' and a `bad bank'," a senior official of the Ministry of Finance said.

He said that while the `bad bank' would be handed over to the asset reconstruction company (ARC) - Asset Care Enterprise (ACE) - being floated by IFCI itself, the `good bank' would remain an independent entity though its final structure would be decided later. While the good bank would continue its lending activity as usual, ACE would try to restructure the bad assets or sell them at a discount.

The finalisation of the restructuring plan effectively puts an end to speculations that IFCI would be merged with IDBI or that another big public sector bank might take it over.

However, officials confirmed that the Kolkata-based IIBI would be merged with IDBI. "IIBI would ultimately be merged with IDBI, whatever shape the latter eventually takes," officials said. A final view on IDBI's restructuring would be taken only after the Standing Committee of Parliament presents its report on the Bill to corporatise the institution.

Officials pointed out that with its much smaller size (asset base of about Rs 6,000 crore), IIBI could be easily absorbed by IDBI that has an asset base of about Rs 66,000 crore.

The decision on the shape of IFCI's `good bank' would be taken only after finalising the restructuring plan for IDBI, Finance Ministry officials said. "We do not want any replication or duplication between the two," officials said.

They said that with the Government having decided to take over a major chunk of the existing liabilities of IFCI, including payments to retail investors, foreign debt and the SLR bonds, the good bank would be able to service the remaining liabilities on its own.

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