The Industrial Development Bank of India (IDBI) seems to be heading towards serious interest rate mismatch. The institution's interest expenditure for the first half of the current financial year (April-September 2001) exceeded its interest income. It paid Rs 3,211 crore as interest costs in April-September 2001, against Rs 2,913 crore of interest and discount income earned during the same period, says the offer document of the Flexibond 12 issue.
In 2000-2001, the interest income was Rs 6,191 crore against an interest outgo of Rs 6,595 crore. Similarly, during 1999-2000, the interest income was pegged at Rs 6,225 crore and outgo marginally higher at Rs 6,370 crore.
"The cost of fund continues to be high for the institution while interest income has come down as corporates are pre-paying high cost loans. Besides, the high non-performing assets (NPA) is also responsible for the low interest income as the institution does not earn interest on sticky assets," said a banking analyst.
More From This Section
IDBI's net NPA was pegged at 14.82 per cent in March 2001. In absolute terms, the NPAs were of Rs 8,372 crore. Since then, it has risen further.
The bulk of the funds raised by the institution have been used to redeem high-cost borrowings. During the current fiscal, IDBI raised Rs 7,000 crore through public and private issues of debt and most of it has been used to fund repayment of old loans instead of building assets.
Thus, IDBI's asset size has been eroded by Rs 2,351 crore during the first six months of fiscal 2001-02 to Rs 69,432 crore as it has not been advancing fresh loans. The outstanding loans and advances of IDBI decreased from Rs 49,336 crore as on March 31, 2001 to Rs 46,961 crore as on September 30, 2001.
In the last financial year, its asset size decreased by Rs 502 crore to Rs 72,285 crore. The maturity profile of the asset and liabilities of the company also points to a negative gap (assets are more than liabilities) in the 'over three years' bucket.
IDBI has exercised its call option to prepay Rs 1,500 crore of old high-cost debt till December 2001. It is planning to follow the same exercise to repay another Rs 2,000 crore by the end of the fiscal. The outstanding of bond and debentures of the company, during the six months fell marginally to Rs 43,330 crore.
However, in the absence of available call options, it has not been able to retire all old high-cost debt. For instance, it wanted to prematurely redeem over Rs 2,000 crore raised from the Life Insurance Corporation of India and the State Bank of India. But it could not do so as the financial intermediaries demanded a stiff prepayment penalty in the absence of a call option.