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Wednesday, Nov 06, 2002

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Industry & Economy - PSU

PSUs worried over funds in IFCI

C. Shivkumar


UNABLE to recover their investments, several public sector corporations, which have parked funds in the beleaguered financial institution, IFCI have landed in trouble.

Many of these investing corporations have not been able to fully recover their deposits from the FI. Some have managed to partially recover a portion of the principal, though interest payments continued to be outstanding, according to top public sector officials.

The PSUs had parked their surpluses with the high-yielding deposits in the IFCI for tenors of up to two years in the hope of realising high yields. IFCI had then offered interest on fixed deposits of at least 11 per cent the sources said. These rates were attractive compared to yields offered by banks and FIs. Banks then were offering only about nine per cent for three-ear deposits. Public sector financial institutions had also offered only similar rates.

Sources said that some of these corporates had parked their surpluses in IFCI for pushing up their return on deposits. IFCI has not been able to meet some of its repayment commitments in view of the severe asset liability mismatch of the company.

The sources said that some of the PSUs had sought intervention from the Union Finance Ministry for recovery of some of their dues. They added that most of these PSUs have accounted dues from the IFCI on an accrual basis and have continued to treat them as part of their investments. This was despite the fact that they have still not received the maturing payments on their deposits.

The sources said that they have opted for treating these dues from the IFCI on an accrual basis in view of the implicit sovereign guarantee status enjoyed by the institution. IFCI is a financial institution under Section 3 A of the Companies Act.

However, what was worrying some of the investors was the nature of the dues owed by the troubled institution. Technically, IFCI is obliged to meet the dues of the secured creditors in order of priority. Fixed deposit holders, both retail and corporate are unsecured creditors.

Secured creditors of the IFCI include bond subscribers — FIs and banks — would receive priority in settlement of over dues. Only after these settlements of secured creditors have been made, unsecured creditors' dues would be settled, they added.

The sources said that IFCI's major problems stem from the high level of non-performing loans in its portfolio and inability to initiate strong recovery action. But with the passing of the securitisation ordinance, some depositors are optimistic of recovery.

In the meanwhile, IFCI has initiated some sales of assets from its portfolios to other FIs and banks in a bid to correct its asset-liability mismatches. But most of the bankers who are prepared to buyout the assets, are inclined only towards the high-quality assets, backed by ironclad guarantees (funded guarantees).

IFCI, however, has resisted any attempt to dilute the quality of its assets, the sources said. Instead, it has preferred the recovery route to rehabilitate some of its loss assets.

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