New Delhi, Jan. 12: The government is expected to finalise the merger of cash-strapped term-lender IFCI Ltd with state-run Punjab National Bank (PNB) as part of the restructuring exercise.

“The notification is expected around early March after it gets cabinet approval,” sources said. “The government has chosen PNB as the bank is cash rich and also aggressive in the retail banking sector.”

“The acquisition of IFCI will give PNB the necessary leverage to focus on investment banking activities,” he said adding that the two institutions are headquartered here was also a factor.

The bailout comes as a final measure in a series of steps the government took to restructure the institution’s liabilities, which has been suffering from huge losses for some time as lending to large projects did not pay off.

He said the government was concerned about IFCI’s liabilities involving foreign borrowings, retirement funds and retail investments. The merger with a state-run bank has been under consideration for quite some time.

Last August, the government sought parliamentary approval to convert loans to IFCI Ltd into grants as part of a Rs 1,573-crore rupee restructuring package.

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

The institution, to recover the lower non-performing loans, has formed an asset reconstruction company (ARC), with a paid-up capital of Rs 20 crore, also jointly promoted with the New-Delhi-based PNB.