IFCI MERGER WITH IDBI BANK WILL HELP TO BRING DOWN NPAs

2nd August 2004: Almost immediately the merger of IDBI with IDBI Bank, IFCI may be merged with the new entity. IFCI has already been preparing for this. IFCI management till date has already been provided the Stressed assets for preparing a spotless balance sheet that would be easy to merge with the acquirer. Thus merging IFCI with IDBI Bank will result a lot of tax incentives that will flow to new entity helping them to avoid taxes.

            The actual process would start around the time of registration of IDBI as a bank. It involves paper work at the ministry of finance (MoF) and resolutions to be adopted by the respective boards.

            The merger is likely to add another 4,300 crore of standard assets to the books of IDBI Bank. It would be the formation of a mega bank vested with the developmental finance role. There would be various positive impacts of this. Right now the borrowers are able to get away with numerous reliefs and concessions because of multiple lenders who do not want to make higher provisions for these assets. With the assets concentrated in the hands of one institution, the concessions will be far less and borrowers will simply have to perform or faced with disciplinary action.

IDBI BANK TO MERGE WITH IDBI

31st July 2004: The extensive gesture of consolidation now promises to transform the last major financial institution into a commercial bank.  After the hedging of Global Trust Bank merging with Oriental Bank of Commerce, it’s now the turn of IDBI Bank to merge with its parent, IDBI.

            The proposal of merger was approved on Thursday by both IDBI and IDBI Bank. They are seeing a change in the pecking order of domestic banks, with the merged entity set to occupy the seventh slot in terms of the asset base. For the few months from now, IDBI will commence it’s functioning as a stand-alone bank, and once the merger is complete, the bank is expected to acquire more strength. It is expected that the merger will be through by April ’05.

            It will be distinct from all the other commercial bank in country, since it will have a more concentration on long-term financing, even after shedding its tag of a development financial institution. This mandate has been given by the Parliament.

            IDBI have an access to IDBI Bank’s 100 branches, this could be the persuasive reason for the merger. Financial institutions are not allowed to raise short-term funds and the merger will provide access to cheaper, retail funds. At present, IDBI has to access long-term funds from both the wholesale and retail markets. The merged entity will have assets close to Rs 80,000 crore.

JM MORGAN STANLEY TO GUIDE IOC THROUGH IBP MERGER

30th July 2004: JM Morgan Stanley is been appointed by Indian Oil to advise the company on its proposed merger with its subsidiary, IBP. HSBC Securities will act as consultants to the merger on behalf of IBP.

By now both JM Morgan Stanley and HSBC Securities have commenced their work. The each will undertake a detail study of the two companies for the next few weeks. Subsequently they are expected to arrive at a valuation of the two companies. Based on the valuation, the share swap ratio between the two companies will be arrived at. The merger proposal will then be placed before the government for its final approval.

As part of a fast-track merger plan, IOC is set to convert IBP into a division of the parent company within the next six months. Succeeding the merger, IOC, the country’s largest oil marketing company, has also taken a decision to retain IBP’s corporate brand. In addition, it will also keep the company’s branded diesel product, IBP Shakti and lubricant, IBP Red, owing to the strong brand equity of the two products in the market.

The two companies already work in close tandem and NG Kannan the director (marketing) of IOC is also the managing director of IBP. On the retail side too, the integration is being worked out. IBP’s infrastructure, which crosses 2,767 petrol pumps, is a huge advantage for IOC to sell its lube products like Servo through IBP’s retail outlets and vice-versa.