Top level discussions have begun with some private banks for underwriting the public portion of the rights issue to ensure smooth passage of the offer, IFCI sources said.

Negotiations assume significance as public holds about 37 per cent stake in the financial institution and their full participation is key to the success of the rights issue.

IFCI has already submitted a draft prospectus with the Securities and Exchange Board of India (SEBI) for the rights issue of 1:1 at Rs. 10 per share to garner about Rs. 323 crore.

Top sources said that the underwriting would ensure that the issue would be fully-subscribed, as the private banks fill in as "stand-by" to the devolved portion of the issue.

Sources, however, declined to identify the banks, as negotiations are in the preliminarystages.

IFCI sources said that they expect full-support for the issue from the financial institutions as the offer was priced attractively.

Financial institutional shareholders including Industrial Development Bank of India (IDBI), General Insurance Corporation (GIC) and Unit Trust of India (UTI) hold about 63 per cent equity stake in IFCI.

With about 28 per cent stake, IDBI is the single largest shareholder in IFCI. IDBI chairman G P Gupta had earlier told PTI that being the largest shareholder, it was also in the interest of IDBI to see that the rights issue succeeds without any hitch.

IFCI sources said other institutional investors have also pledged full support to the issue. IFCI officials were optimistic that the downgrade of its medium and long term borrowings by rating agency Icra would not come in the way of the success of the rights issue.

Last week, IFCI reported a drastic 93 per cent fall in its net profits at Rs 23.50 crore during 1998-99, following a massive provisioning for Rs. 2000crore for non performing assets (NPAs).

During the last fiscal itself, the institution made an additional provisioning of Rs. 600 crores for NPAs.