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Cash props for IFCI to be handed next month

New Delhi, Aug. 17: The government will announce next month a restructuring package for Industrial Finance Corporation of India (IFCI), the ailing state-run development financial institution.

Last week, the government sought Parliament’s approval for an additional Rs 1,573 crore for budget support to restructure IFCI. “The notification is expected around September 15 after the proposal is approved and receives presidential assent,” said sources.

As part of this restructuring package, the government has extended the tenure of V. P. Singh, chairman and managing director of IFCI, by four months till January 31.

The cash-strapped term lender has been saddled with huge bad loans by lending to large projects, especially in the steel and textile sectors. This, coupled with payment defaults by around seven to eight well-established corporate groups, has turned it into a sick institution.

“The grant would enable IFCI to retire high-cost funds, which will provide relief in terms of interest cost,” sources said. “The government wants to restructure the institution since IFCI's liabilities include foreign borrowings,” they added.

Last December, state-run banks and financial institutions, which included top officials of IFCI, Industrial Development Bank of India, Life Insurance Corporation, State Bank of India, Punjab National Bank, Bank of Baroda and Oriental Bank of Commerce, had also worked out a loan-restructuring package. Under the Rs 6,000 crore restructuring package drawn up, the higher interest bearing funds of 14 to 16 per cent was replaced with a lower interest rate of 6 per cent.

IFCI, set up in 1948, is the country’s first financial institution established to provide credit to medium and large industry.

However, a depressed capital market in the mid-1990s and a change in the operating environment for term lenders due to the lower interest regime undermined IFCI.

The institution has formed an asset reconstruction company with a paid-up capital of Rs 20 crore to recover its non-performing loans. During the first quarter (April-June) of the current financial year, it reported a loss of Rs 862 crore.

Last month, banks and financial institutions agreed to help the institution reduce its interest costs by recasting debts worth over Rs 2,700 crore. Under the debt restructuring scheme approved by them, the maturity period of the statutory liquidity ratio bonds (SLR) issued by IFCI to banks and FIs was extended by 10 years and the interest rate reduced from 11.5-13.5 per cent to about 6-7 per cent on government securities.

The move came close on the heels of a deal with Employees Provident Fund Organisation for a partial roll-over of IFCI’s debts amounting to Rs 1,000 crore. This was done by extending the maturity period of non-SLR bonds by 10 years and reducing the interest rate to 10 per cent from 12-14 per cent.

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