In a major policy decision, the government has allowed the Industrial Development Bank of India to reissue statutory liquidity ratio (SLR) bonds. IDBI had stopped issuing SLR bonds in 1992. These bonds had a tenure of 10, 15 or 20 years.
The Budget had earmarked around Rs 2,345 crore for the financial restructuring of IDBI and IFCI, of which Rs 772.9 crore would be for IDBI and the remaining for IFCI.
Under the proposal, the IDBI will pay its lenders, which includes more than 20 institutions and commercial banks, interest on all bonds coming up for redemption in the next five years on the due date. Additionally, the government will make good the difference in cash to IDBI for the interest rates paid in excess of 8 per cent on the bonds coming up for repayment in the next five years effective March 1, 2003.
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The principal will however be reinvested by these institutions in fresh bonds to be issued by IDBI at today's market rates for a tenure equal to the tenure of the original bond issue. The rates on these new bonds would in line with the spreads put out by Fimmda over the rate for corresponding government securities.
This proposal, sources said will take the pressure away from the IDBI which facing potential redemption pressures. Since the maturing bonds will be replaced by new bonds and its interest burden will also reduced, IDBI has emerged unscathed out of a potentially sticky situation.
In the next five years, Rs 12,000 crore of bonds are coming up for repayment by IDBI to the other institutions like insurance companies and commercial banks. Of this amount, around 25 per cent (Rs 3000 crore) is made up of SLR bonds.
According to a proposal worked out by finance ministry officials, all other terms and conditions of the proposed bonds will remain the same as for those that come up for renewal. The government would pay IDBI the difference in the interest rates every year.
The government had initially thought of compensating the loss in interest amount in the form of bonds. The cash route was favoured to avoid the administrative hassle of issuing bonds to more than 20 banks and institutions.
The government had proposed to issue bonds of around Rs 2,500 crore over a period of five years to make up for the differences in interest rate.
Of IDBI