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Thursday, Oct 02, 2003

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Sick cos in IDBI, IFCI portfolio up

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Mumbai , Oct. 1

THE year 2002-03 tested the survival instincts of even some of the best companies. GDP growth at 4.3 per cent, subdued by insufficient rains, was the second slowest in a decade. The country's trade deficit widened and weak domestic demand compelled several companies to cut jobs and reduce inventories to survive.

Yet many of them fell by the wayside. According to the Report on Development Banking in India released by IDBI here recently, 147 companies went into the BIFR (Board for Industrial and Financial Restructuring) fold during 2002-03 compared to 118 in the previous year. In fact, while the total number of sick firms fell from 568 at the beginning of 2001-02 to 549 by March that year, the number rose sharply to 603 during the next year. However, the report gives statistics of only those sick companies that are funded by IDBI and IFCI.

The two development financial institutions saw the total loan outstanding to sick companies rise from Rs 5,660 crore at end-March 2002 to Rs 6,680 at end-March 2003. While 13 sick companies made a turnaround in 2002-03, not even one could turn around in the next year.

The depressed investment atmosphere also shrunk the assets of financial institutions (FIs) during 2002-03. During the year, financial assistance sanctioned and disbursed by FIs (all development financial institutions) was Rs 36,290 crore and Rs 30,718 crore, respectively; the corresponding figures for 2001-02 stood at Rs 79,687 crore and Rs 63,890 crore, respectively. However, the report said, the data for 2001-02 and 2002-03 could not be compared as ICICI Ltd ceased to operate as an FI from the beginning of financial year 2002-03.

Excluding ICICI's operations, sanctions and disbursements by FIs during 2001-02 stood at Rs 43,458 crore and Rs 38,059 crore respectively. In comparison, sanctions and disbursements during 2002-03 declined 16.5 per cent and 19.3 per cent respectively year on year.

"The languid pace of overall economic activity in general and, in particular, a somewhat placid industrial investment climate, leading to a significant fall in investment decisions, contributed in varying degree to a decline in overall business volumes of FIs for the second consecutive year, the report said. Demand for project finance, particularly from the traditional industries and infrastructure sector constituents, continued to taper, it added.

FIs' sanctions and disbursements under project finance during 2002-03 declined by 32.1 per cent and 24.1 per cent to Rs 8,067 crore and Rs 6,086 crore respectively. Sanctions and disbursements by FIs under non-project finance, in contrast, recorded a much sharper decline -- 34.4 per cent and 37.2 per cent, respectively. During the year, the infrastructure sector at Rs 4,999 crore and services at Rs 4,536 crore accounted for nearly half of institutional sanctions.

However, in the foreword to the report, Mr P.P. Vora, Chairman and Managing Director, IDBI, said, "There is measured optimism that the observed vitality in economic performance and business sentiment indicators and, by extension, the investment climate, would translate into an improvement in business volumes and asset quality for most of the financial institutions during 2003-04."

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