MoF releases Rs 400 cr in IFCI bailout package

Harjeet Ahluwalia

New Delhi, Oct 31: The finance ministry (MoF) on Tuesday released Rs 400 crore in the form of 20-year convertible debentures to shore up the capital base of the ailing IFCI Ltd. The move paves the way for infusion of the remaining portion of the Rs 1,000-crore bail-out package approved by the government in July this year.

The amount comes with certain riders, mainly relating to recovery of outstanding dues and induction of a strategic partner. Once the full sum promised to it arrives at IFCI, its capital adequacy ratio will stand close to 11 per cent.

Its capital adequacy had fallen to 6.22 per cent at the end of 2000-01 against 8.8 per cent the previous year.

The remaining Rs 600 crore in the form of similar 20-year debentures is due from its major shareholders, including IDBI, State Bank of India (SBI) and Life Insurance Corporation (LIC). The bonds, carrying an interest of 9.75 per cent per annum, have been allocated by the government in the form of tier-I capital stock, repayable at par on October 30, 2021, according to a finance ministry notification.

It has exhorted the sick financial institution to make “serious attempts” for recovery of non-performing assets (NPAs) stuck in cases before the Board for Industrial and Financial Reconstruction (Bifr) and in various high courts, as also take measures to raise resources.

The government has enjoined IFCI to look for a strategic partner “as soon as its financial health is restored”.

This intention had been stated by the management already as part of its commitment when its restructuring package being worked, based on the recommendations of the D Basu committee, submitted late last year.

IFCI’s NPAs stood at 20.34 per cent as at the end of March this year. The management has blamed the high level of NPAs on the fact that it is a predominantly single-product company with long-term project finance for grassroot projects. Being high-risk, these constitute over 90 per cent of its portfolio.

In the latest plan for revival outlined by its new chairman and managing director VP Singh, IFCI would enter into strategic alliances with commercial banks for short- and medium-term financing and identify a strategic partner to streamline its long-term lending operations.