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Thursday, Dec 12, 2002

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Banks wary of raw deal in IFCI recast

Sarbajeet K. Sen

NEW DELHI, Dec. 11

WHILE the revival package for IFCI Ltd is nearing finalisation, there appears to be considerable disquiet among a section of the institutional shareholders of the FI which are collectively working on the contours of the bailout package.

It is understood that dissent has come by way of smaller banks involved in the exercise that are afraid they might end up with a raw deal in the liability restructuring exercise. Fears have been expressed that some of the entities that are being asked to participate in the recast exercise are too small to take on the burden that might devolve on them.

"One has to look into the size of the balance sheet while deciding who would be responsible for how much in the liability restructuring. Obviously, there has to be a sense of balance in the whole exercise," top bankers involved in the exercise said indicating that there was still much to be done to bring about unanimity on the details of the package.

However, the banker refused to elaborate on the discussion held at the meeting of the lenders formed to decide on the issue that was recently in New Delhi. After the completion of the meeting, top IFCI officials had said that the liability-restructuring proposals have been broadly agreed to. The institutions that are likely to be involved in the finalising of the restructuring package include IFCI's largest shareholder, IDBI, along with LIC and a clutch of banks including SBI, PNB, BoB, Central bank of India, Oriental Bank of Commerce, Punjab and Sind Bank, Indian Bank and UCO Bank.

Similar problems had arisen while deciding on the capital infusion package for IFCI a couple of years back. At that time, while initially it was being explored whether all the institutional shareholders could pitch in with their bit, at the end it was only the big three - IDBI, LIC and SBI - along with the government that contributed towards the Rs 1000-crore recapitalisation.

This time around the recast exercise is likely to be of a much larger scale with around Rs 12,500-crore of liabilities to be dealt with. While the Government is supposed to have agreed to extend guarantees to help roll over a large portion of the amount, the institutional shareholders would have to decide on the modalities of dealing with the remaining amount. Proposals under consideration include reduction of coupon rate on some of IFCI instruments in which the lenders had invested along with the rescheduling of repayments.

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