IDBI bans loans to companies with net worth below Rs 30 crore

Sitanshu Swain

Mumbai, Nov 19: Industrial Development Bank of India (IDBI), in an unprecedented prudential measure, has put a blanket ban on fresh loans to any companies with rating below AA and having net worth of less than Rs 30 crore. The new measures also stipulate that no relaxation in the norms can be allowed by the zonal committee of IDBI.

A clutch of such stringent prudential norms for India Inc has been issued by the top management team of IDBI to reduce its non-performing assets in its run-up to converting itself into a universal bank. The message is clear: IDBI wants to acquire only good assets from now on. In a recent board meeting, the institution has approved an all-round action plan to squeeze its credit exposure to any risky
business and to expand business with companies with good financials.

The institution’s board has decided that the loans up to Rs 10 crore from assisted units for expansion, diversification and modernisation of existing businesses can be considered by the IDBI under the various schemes as a single lender provided there is no default/group default and the payment record is impeccable to IDBI/ other financial institutions/ banks.

Such company needs to have track record of high profit making/dividend paying and should have satisfactory cash flows, has debt to equity ratio of 1:1 and meets other usual norms, explains the new directives by the top management team headed by chairman Mr P P Vora to all executive directors.

The zonal committee has also decided not to entertain any proposals from companies having default/group default to IDBI or any FI/bank. No proposals also can be entertained from industries with excess capacity/high risk industries. The credit committee will specify such industries from time to time.

Also, for the first time, the directive has asked the zonal chiefs/branch in charges/chief general managers at the head office to ‘personally call on chief executive officer’’ of AAA/AA/highly profitable-dividend paying companies regularly to solicit business. Monthly reports will be reviewed by top management team from time to time.

The new directive says that all proposals for assistance to new greenfield projects including those being set up by the existing assisted companies/promoters be referred to credit committee for consideration.

Taking a tough stand on wilful default, the institution has also asked all the executive directors to ensure that there is no default under the Treasure Product Facility scheme meant for only AAA corporates. “Overdues to be recovered falling which security will be created/legal action initiated,” warns the directive.

Normally, the credit committee is empowered to sanction assistance up to specified limits with respect to head office and cases from branches where the assistance recommended for sanction exceeds the power of the zonal committees. Credit committee presently comprises four executive directors , adviser and two chief general managers with the senior most executive director acting as the chairman.

During 2000-01, while the business of the institution has declined along with the profit, 85.2 per cent (86.6 per cent in 1999-2000) of the bank’s loan and other assistance portfolio were classified as standard assets during the period.

The five zonal committees have been constituted at the respective zones (Mumbai, Delhi, Calcutta, Chennai and Guwahati). The zonal committees comprise the chief general manager (CGM) for the respective branches within that zone as the members of the committee. Moreover, an official of the rank of a general manager from the head office also participates in Zonal Committees as a special invitee.