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Poornima Mohandas

Mumbai , Feb. 19

SIDBI, the apex refinance organisation for the small-scale industries, has entered into agreements with five sick State finance corporations (SFCs) to restructure debt worth Rs 2,000 crore.

``Under the agreement the State finance corporations of Karnataka, Kerala, Andhra Pradesh, West Bengal and Rajasthan will benefit from lower interest rates on the loans given out and a moratorium period of one year,'' said Mr N. Balasubramanian, Deputy Managing Director, Small Industries Development Bank of India (SIDBI).

The refinance institution has been working closely with the SFCs since the Government's announcement to restructure them in August 2003. SIDBI recently entered into memorandums of understanding with the five States and hopes to enter into similar arrangements with Tamil Nadu, Delhi and Madhya Pradesh by March.

``The interest rates on the outstanding loans to these SFCs will come down by at least 2 per cent to 9.5-10.5 per cent. Fresh funding to them, if necessary, will be given out at 8.25 per cent,'' said Mr Balasubramanian.

SIDBI has a total exposure of Rs 4,100 crore to the 18 SFCs in the form of re-finance out of which 20 per cent has turned bad.

The institution has laid out conditions that the State corporations must adopt fair appointment of board members and top posts in the corporations, start VRS initiatives, ensure transparent operations and MIS reports.

The various SFCs, which were set up under the State Financial Corporation Act, 1951 with the aim to provide medium and long-term credit to industrial undertakings, which fall outside the normal activities of commercial banks, have suffered heavily from bad loans and mis-management over the years.

To balance off the estimated Rs 900-crore impact on SIDBI due to the sops, the Government had earlier decided to defer payment of all interest by SIDBI on SIDBI bonds for a period of 10 years. This will amount to deferment of payment of about Rs 1,740 crore in ten years.

VRS draws poor response

SIDBI, which has employee strength of 970 closed its first VRS on Thursday with just about 30-35 people opting for it.

The scheme was open to all employees above 40 years of age with at least 15 years of service. The package on offer was as follows: the ex-gratia payment will be two months of salary for every completed year of service or basic salary plus dearness allowance for remaining years of service, which ever is lower of the two. The ex-gratia payment up to Rs 5 lakh is to be exempt from taxes.

The package was availed by people from various levels. Mr N Balasubramanian, Deputy Managing Director, Small Industries Development Bank of India (SIDBI) noted that it was satisfied with the response although a higher target of 100 had been set earlier.

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