The proposed merger of Infrastructure Development Finance Company with Infrastructure Leasing and Financial Services is on the rocks.
Senior government sources said differences among the financial sector brass had relegated the plan, piloted by former finance secretary and now secretary in the Prime Minister's Office, S Narayan, to the backburner.
According to the sources, Housing Development and Finance Corporation chairman Deepak Parekh, RBI Deputy Governor Rakesh Mohan and IDFC chief executive officer Nasser Munjee had a difference of opinion with the finance ministry on the merger proposal.
On the other hand, IL&FS chief Ravi Parthasarthy and UTI-I administrator M Damodaran wanted the merger to materialise.
A senior government source said: "Content has become secondary now. There is a clash of personalities."
HDFC, the RBI and the Unit Trust of India hold significant stakes in the two companies.
The finance ministry's primary motive behind the merger was to push for higher infrastructure spending in the country.
The ministry also wanted to realise the value of the government-controlled UTI-I's investment in IL&FS. UTI-I is one of the principal promoters of IL&FS with a 22 per cent stake in the company.
The ministry wanted to reduce the government's commitments to UTI-I by selling its stake in IL&FS to a third party.
The sources said the higher level of non-performing assets of IL&FS was a hindrance to the merger.
IL&FS has, however, been in the business of infrastructure funding for much longer than the IDFC. On March 31, 2002, it had an asset base worth Rs 3,200 crore (Rs 32 billion). Its paid-up capital stood at Rs 107 crore (Rs 1.07 billion), and reserves Rs 478 crore (Rs 4.78 billion).
The sources pointed out that the IDFC's performance as a catalyst for private investment in the infrastructure sector did not meet the government's expectations.
In the years since its inception in 1997, cumulative disbursements of the IDFC were just about Rs 2,500 crore (Rs 25 billion). It was initially capitalised at Rs 1,000 crore (Rs 10 billion), and further raised Rs 650 crore (Rs 6.5 billion) through subordinated loans.
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