RBI tells IDBI to rework priority lending strategy

Plan to treat outstanding core exposure as priority lending spiked

The Industrial Development Bank of India Ltd's (IDBI) proposal to the Reserve Bank of India (RBI) seeking priority sector status for its outstanding infrastructure lending portfolio "" and thus an exemption from priority sector lending norms "" has met with resistance at the apex bank.

According to banking sources, the RBI has suggested two options for dealing with the priority sector norms by IDBI as a scheduled bank.

The banking regulator is of the view that the new entity should keep lending 50 per cent of its fresh disbursement as a bank to the priority sector. This should continue till the time it sees 40 per cent of its total outstanding loans disbursed to the priority sector.

Alternately, the RBI has asked IDBI to seek the government's permission to treat infrastructure financing as priority sector. It should form part of the IDBI Act which has enabled the development financial institution to become a commercial bank.

At present, IDBI has total loan outstanding of around Rs 40,000 crore. So it is not possible to reach a priority sector lending of Rs 16,000 crore in one year, said sources. Therefore, yearly investment of 50 per cent will help it to reach the target in a gradual manner.

According to sources, IDBI had suggested to the RBI that IDBI Bank will continue with the priority sector norms whereas IDBI should be granted exemption since it continues to be the lead financial institution for development financing.

It had further asked that the development financing activity should be accorded priority status. The merger of the two will formally take place with effect from April 1.

Meanwhile, the stressed asset stabilisation fund (SASF) set up by IDBI with a Rs 9,000 crore grant from the government has already started cleaning the balancesheet of the institution.

A total of 636 stressed accounts have been transferred to the SASF, of which at least 70 cases have been settled, amounting to a total recovery of around Rs 900 crore which will accrue over a period of three years.

It has been settling stressed accounts through various methods including one-time settlement and negotiated deals. It proposes to realise around Rs 40-50 crore this fiscal. It has settled about 12 cases through the corporate debt restructuring route.