The Hindu Business Line : IDBI to be bank from Oct 1 — FI status for stressed asset fund

THE Government has accorded the status of a financial institution to Stressed Assets Stabilisation Fund (SASF) - - the Rs 9,000-crore special purpose vehicle that is taking over the non-performing assets of Industrial Development Bank of India.

IDBI has received a communication from the Government declaring the appointed date for its conversion into a commercial bank on October 1. With the final clearance, IDBI is expected to quickly transform itself into a full-fledged bank, an institutional source said.

In a letter to IDBI, the Government said it has given SASF an institutional status to help it recover dues from defaulters. The institution has moved the Debt Recovery Tribunals or courts in many cases. With the locus standi of SASF unclear, the cases could have slipped into uncertainty.

The Government move has given the authority to the SASF to recover dues on its own right. A gazette notification is awaited, the source said.

It is, however, still unclear as to who will be responsible for the management of SASF and whether the people to man the fund will come from IDBI or the Government.

According to an institutional source, the management of SASF could be handed over to the Asset Reconstruction Company of India Ltd.

Even though IDBI has not yet revealed its plans regarding the transition to a bank except the in-principle decision to merge IDBI Bank with itself, a source said the strategy is more or less likely to be in line with a plan drawn up a couple of years ago.

According to the earlier plan, IDBI will first merge IDBI Bank with itself. It will then buy out its partners in Stock Holding Corporation of India and convert its over 120 offices into bank branches.

IDBI bought Tata Home Finance to augment its product portfolio and was in talks with international insurance broking firms to enter that business through joint ventures.

The reasoning was that with the merger of IDBI Bank (105 branches and permission to set up another 30) and SHCIL, the new entity would have a nationwide network to begin operations. The two entities will also instantly bring several products that a modern universal bank requires. IDBI will, at a later stage, acquire a public sector bank that would complete its transition into perhaps the second biggest bank in the country.

In fact, IDBI had zeroed in on Bank of India as a potential merger candidate and the top brass had held preliminary talks with the then Chairman, Mr K.V. Krishnamurthy, who was said to have responded warmly to the proposal.

Govt issues bonds for Rs 9,000 cr

Our New Delhi Bureau adds: The Government on Wednesday issued special securities for Rs 9,000 crore towards the creation of the `Stressed Assets Stabilisation Fund (SASF)' to help Industrial Development Bank of India tackle its problem of stressed assets.

The amount will be invested in non-interest bearing special securities of 20-year maturity with call option. The transaction is budget neutral for the Government, a Finance Ministry release said.

The amount realised by SASF on the recovery of dues will be paid to the Government annually. The Government will redeem bonds of an equivalent amount, thus leaving IDBI with an equivalent amount of cash. There will be no net out-go from the Government on account of the transaction.

With the cleaning up of IDBI's books, the net NPA position of IDBI is expected to improve, leading to better credit rating and consequent ability to access lower cost funds in the domestic and foreign markets to enable IDBI to compete aggressively for business.

The Finance Ministry said that given that IDBI will continue performing development finance role, SASF offers the Government a cash neutral, budget neutral approach to ensure that systemic risk is eliminated to deal with IDBI's asset quality problem at one go.

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IDBI to be bank from Oct 1 — FI status for stressed asset fund