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Tuesday, Nov 26, 2002

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Banks await directive on loans to IFCI

C. Shivkumar

PSU insurance companies have indicated they would not be in a position to provide any support to IFCI as they are expected to push through a voluntary retirement scheme entailing an outgo of at least Rs 400-500 crore for each.


PUBLIC sector banks have deferred provisioning on overdue repayments of loans lent to the beleaguered Industrial Finance Corporation of India (IFCI) and are waiting for a directive from either the Reserve Bank of India (RBI) or the Ministry of Finance.

Sources said here, however, that the banks have adopted income recognition norms on investments in the IFCI. This implied that only wherever debt servicing was taking place they were recognising the income.

Some of the PSBs had invested in IFCI bonds on which there was large outstanding of interest servicing overdues. The overdues also include money invested by public sector enterprises in the deposits of IFCI.

Besides, the banks have also ruled out any form of recapitalisation support to the IFCI. Last year, the government had supported the IFCI to the extent of Rs 1,000 crore with additional support coming from the State Bank of India and the Life Insurance Corporation. However, this time both these institutions have expressed reluctance to extend any liquidity support. Banks, FIs, mutual funds (including UTI) and the public sector insurance companies together hold about 67 per cent of the Rs 639-crore equity capital of IFCI with the IDBI holding at least 32 per cent of the equity.

Besides, the insurance companies have also indicated that they would not be in a position to provide any support to IFCI. This was because insurers this year are expected to push through a voluntary retirement scheme entailing an outgo of at least Rs 400-500 crore for each of the four companies. Further, all the insurance companies are now faced with reduced return on investments. Consequently, any large-scale support to the IFCI at this juncture would have an impact on their solvency, the sources added.

The sources said that one of the major reasons for bank's reluctance to provide recap support to IFCI was due to the large provisioning requirements. If past lending to the IFCI has to be provisioned, then few of the banks are unlikely to have any resources for making liquidity support, the sources said.

The only support IFCI was likely to get from the banks was for the proposed Rs 300 crore support, for which the government has agreed to provide sovereign guarantee cover, which entails only a zero risk weighting.

The banks' reluctance to provide any large support to the IFCI stems from the large losses suffered by it. For the first quarter of this financial year, for which results are available, IFCI has suffered an operating loss of Rs 171 crore. Inclusive of provisions, the losses during the period had gone up to Rs 220 crore. Inclusive of the Rs 885 crore loss suffered for the last financial, IFCI has already wiped out its net worth.

Given this kind of a financial situation, institutional creditors have suggested take out of some of the high quality assets of IFCI to settle some of the outstanding liabilities and also help it to accelerate its revival. In fact the kind of assets the creditors are targeting are some of the `AAA' rated public sector bonds and high-coupon government securities.

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