FinMin To Clear IDBIs $500-m ECBs Soon

New Delhi, November 4 | Updated: Nov 5 2003, 05:30am hrs
The Finance Ministry (FinMin) will shortly give IDBI the go-ahead to raise $500 million through external commercial borrowings (ECBs) for the restructuring of steel and textile companies.

IDBI has proposed to raise $500 million through ECBs. They will get the approval as the funds will be used for restructuring steel and textile companies, a senior MoF official told PTI here on Tuesday.

IDBI hopes to get the governments approval and raise the funds within this fiscal year.

IDBI plans to appoint one or more reputed foreign banks to arrange for the ECB at 1.75-1.85 per cent above Libor.

The move to go for cheaper sources of funds comes in the wake of IDBIs huge exposure in steel (about Rs 20,000 crore) and textile (about Rs 10,000 crore).

Although the government is discouraging ECBs above $100 million, the MoF had earlier cleared ICICI Banks $300 million ECB as the bank will use it for ailing steel companies.

IDBI would be given the permission on similar grounds, the MoF official said.

Apart from the ECB, the countrys leading FI plans to hit the market with its tax-savings bonds soon after Sebi clearance.

IDBI had already obtained umbrella approval from the MoF for raising Rs 3,000 crore Rs 1,500 issue with a green-shoe option to retain another Rs 1,500 crore, sources said.

Though IDBI is slated to become a universal bank after the parliament clears the IDBI Repeal Bill, it would continue with developmental financing for which it would tap the bond market, official sources said.

Restructuring at the IDBI has started but the FI is yet to be allowed to raise cheaper deposits. This would be possible once the Repeal Bill is passed and the FI is registered as a banking company.

The government has plans to bridge the interest rate differential in the first five years of its transformation, as IDBIs cost of funds is more than its cost of lending.

IDBIs cost of borrowing will come down by 2.5 per cent to 6.0 per cent after the restructuring, which will significantly improve its financial health.

The need for the bond and ECB also comes in the wake of the rise in loan sanctions by IDBI by 205 per cent to Rs 2,568 crore in the first half of this fiscal year from Rs 841 crore in April-September 2002. (PTI)