Financial Daily from THE HINDU group of publications
Saturday, Apr 22, 2006
Financial Daily from THE HINDU group of publications Saturday, Apr 22, 2006 |
|
|
|
|
|
Money & Banking
-
Financial Institutions States - Karnataka KSFC may be converted into universal bank C. Shivkumar
`A proposal to this effect has already been taken up with the Union Government. Conversion to a universal bank would give KSFC greater flexibility to raise resources and make it competitive.'
Bangalore , April 21 The Karnataka State Finance Corporation (KSFC) is likely to be converted into a universal bank, if the recommendations of the consultants go through. KSFC had appointed former Chairman and Managing Director, Small Industries Development Bank of India (SIDBI), Mr Shailendra Narayan, as consultant for recommending a turnaround strategy. The KSFC Managing Director, Mr Jayaramaraje Urs, told Business Line, "The proposal has been put forward to the State Government." The State Government is a 70 per cent stakeholder in the KSFC's paid-up equity of Rs 97.84 crore. "Other shareholdershave supported the proposal," he said. IDBI and public sector banks together hold the remaining 30 per cent equity. Converting the KSFC into a universal bank would be on the lines of the transformation of the development financial institutions such as IDBI and ICICI, all of which have become banking institutions. However, Mr Urs said that the State Finance Corporations Act would have to be amended for this conversion. A proposal to this effect has already been taken up with the Union Government, he added. Conversion to a universal bank would give KSFC greater flexibility to raise resources and make it competitive. Currently, KSFC's resources for lending are raised through refinance support from SIDBI or through bond issues.
NPA strategy
The turnaround strategy also involved reducing the non-performing Assets (NPA). KSFC is stuck with accumulated losses close to Rs 600 crore and net ratio of 45 per cent and gross NPA of over 50 per cent. This had resulted in wiping out its equity. Net NPA's of KSFC amount to Rs 597 crore. KSFC's consultants have supported creation of a stressed asset stabilisation fund for taking out the NPAs. "This will help up clean up our balance sheet and at the same time pursue recovery of assets, " he added.
More equity support
Alternatively, the corporation would require additional equity support despite the turnaround achieved over the last two years. It reported operating profits of Rs 5.02 crore in the last financial year 2005-06 and Rs 7.76 crore the previous year. As a part of the tripartite memorandum of understanding with the State Government and SIDBI, KSFC has already contained its incremental NPAs to under 5 per cent. Mr Urs said that KSFC had sought equity from the State Government and SIDBI to the extent of Rs 400 crore for the turnaround. The proposal involved pumping in funds in the form of recapitalisation bonds on the same lines as what the Centre provided to the weak public sector banks such as Indian Bank. However, this year, the State Government has committed only Rs 25 crore as equity support. In the interim period, Mr Urs said, KSFC had worked to cut its expenditure. This included reducing its interest costs on earlier high cost borrowings through debt swaps. The total amount swapped so far was Rs 360 crore, which helped bring down interest costs.
More Stories on : Financial Institutions | Karnataka
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2006, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|