New Delhi, June 6: The employees’ union of IFCI Ltd has demanded that the financial institution be merged with Industrial Development Bank of India (IDBI) instead of Punjab National Bank (PNB), citing better operational synergies.

The co-ordination committee of IFCI’s employees unions said the merger with IDBI would help in improved policy planning, lower taxes and an increased portfolio.

“The merged entity would have a fairly diversified portfolio with an acceptable level of exposure to various industries and infrastructure projects,” said Ram Khobragade, convenor of the committee.

IFCI, set up in 1948, is the country’s first financial institution established to provide credit to medium and large units.

However, a depressed capital market in the mid-1990s and a change in the operating environment for term lenders due to the lower interest regime undermined IFCI.

In January 2004, the NDA government led by the Bharatiya Janata Party had proposed to merge IFCI with the Punjab National Bank.

The previous finance minister, Jaswant Singh, had said the government would merge the standard assets of IFCI with the bank, while the bad assets, which analysts said are as high as 48 per cent of the total, would be transferred to the asset reconstruction company it has floated with PNB.

The merger has since run into rough weather, complicated by a change in the government and PNB’s reluctance to acquire IFCI’s liabilities. There have also been protests from the term lender's employees’ union.

“If the proposed merger with PNB is not stopped, the entire staff may resort to an agitation,” Khobragade said. “A few top officials of IFCI are acting in their own interests. That IFCI could act as an investment banking arm of PNB is totally false.”

In August last year, the government had to take parliamentary approval for an additional Rs 1,573 crore as budgetary support to tide over the institution’s immediate liquidity needs.

During the first nine months of the last financial year, IFCI reported a lower operational loss of Rs 231.9 crore against Rs 275.7 crore reported in the year-ago period.