New Delhi, Oct. 22: The shoguns have finally decided: the Industrial Development Bank of India (IBDI) will be allowed to convert itself into a universal bank with the repeal of the IDBI Act possibly this winter, while the Industrial Finance Corporation of India (IFCI) will receive bailout funds.
Both the ailing financial institutions had appealed to the government for a lifeline—Rs 5,000 crore for IBDI and Rs 8,500 crore for IFCI.
At a meeting between finance secretary S. Narayan and top officials of the two financial institutions, it was decided that only IFCI would get a bailout package. However, as part of a restructuring drive, IDBI would be allowed to seek a licence to enter retail banking, where business prospects and margins are a lot better than the term-lending segment.
Sources said the size of IFCI’s bailout package had not been decided. “Before we decide on the restructuring package we wanted to hear their views so that the restructuring package is mutually beneficial to both the financial institutions as well as to other concerned parties,” they added.
The finance ministry is weighed down by the prospect of having to fork out Rs 13,500 crore to the two institutions especially after it had just stumped up Rs 14,500 crore to put Unit Trust of India back on an even keel. The ministry found it politically difficult to justify such large bailout packages for FIs, as ministers were complaining that they would severely undermine the government’s fiscal position.
Sources said an amendment to the IDBI Act could be moved during the Winter session of Parliament to enable the institution acquire a banking licence.
Today’s meeting was attended by the chairmen of the State Bank of India, Bank of Baroda, Life Insurance Corporation (all stakeholders in the two institutions), deputy governor of the Reserve Bank and other major lenders to both IDBI and IFCI.
When the bailout package for UTI was cleared, several ministers had advised that state-run financial institutions should be asked to pursue defaulters instead of being given bailouts as this money was really being used to write-off loans given to big business.
For the year ending March 31, 2002, IDBI clocked a lower profit of Rs 424 crore as against Rs 691 crore in the previous year, while IFCI reported a net loss of Rs 884 crore. Non-performing assets (NPAs) of IDBI rose by 17 per cent to Rs 10,466 crore and that of IFCI stood at 22.4 per cent (although analysts say it is close to 48 per cent).
IDBI’s financial problems arose when its investments running into over a thousand crore of rupees in non-convertible debentures of a horde of known and unknown companies like Asil Industries, Atash Industries, Hamco Mining, Jhaveri Polymers et al went sour.
IFCI’s state has been attributed to payment defaults by around seven to eight well-established corporate groups each to the tune of Rs 800-1200 crore, and the discontinuation of SLR bonds from the RBI.