The Telegraph
Since 1st March, 1999
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Cash clean-up before IFCI revival

New Delhi, March 9: The government will delay restructuring of the ailing financial institution, Industrial Finance Corporation of India (IFCI) till it cleans up its balance sheet.

Top banking sources said the cleaning up of the balance sheet would have to come first before the government starts off with steps to revive IFCI.

“Based on the institution’s debts — the principal amount and interest accrued — we will repair the balance sheet,” bankers said. “Once this is through, the institution will automatically be back in the business of institutional funding.”

Lending banks will first restructure IFCI’s statutory bonds, borrowed from financial institutions and banks. These bonds currently form the lender banks’ statutory liquidity ratio (SLR).

Among the lender banks and FIs are State Bank of India, Life Insurance Corporation, Punjab National Bank, Bank of Baroda and Oriental Bank of Commerce.

While the statutory bonds, due to mature on or after April 1, 2002, will be renewed at market rates, the non-statutory bonds would be divided in two equal parts: to be renewed at zero coupon rate and 6 per cent rate for a 20-year term, respectively.

“This would help IFCI to improve its capital adequacy ratio (CAR) and provide relief in terms of interest costs,” the official said. Currently, IFCI’s CAR stands at 3.12 per cent against the Reserve Bank of India’s stipulated 9 per cent.

As a development financial institution, IFCI has provided long-term loans to a host of companies over the years. But, in the past few years, the principle of borrowing short and lending long led to severe asset-liability mismatches coupled with payment defaults by around seven to eight well-established corporate groups.

For the third quarter in the current financial year 2002-03, the institution has doubled its loss to Rs 95 crore up from Rs 48 crore in the year-ago period. While the operational income stood at Rs 443 crore for the three-month period (October-December) down from Rs 638 crore in the corresponding period.

“Once all this is over the government will be requested to take further steps to revive IFCI’s health,” officials said. Various options were currently being studied in this regard.

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