Stocks of both the financial institutions Industrial Development Bank of India (IDBI) and Industrial Finance Corporation of India (IFCI) propped up on hopes of a bailout for them in line with the UTI package announced by the central government.
The IDBI stock soared 7.92 per cent at Rs 20.45 and IFCI was locked at the 20 per cent upper deck at Rs 5.60. Relatively high volumes were witnessed on the counters. Over 10 lakh shares of IDBI changed hands on BSE and NSE combined while 18,401 IFCI shares changed hands on BSE.
Buying interest in both state-run financial institutions arose on hopes that after coming out with a bailout package for India's largest mutual fund, Unit Trust of India (UTI), the Centre might also announce a similar package for the funds-strapped IDBI and IFCI.
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As per market sources, the decision on the package to bail out IDBI and IFCI may come next weekend when the Centre meets to decide disinvestment in BPCL and HPCL. There's also expectation that the two financial institutions may be privatised.
Earlier, there were reports that the plan for converting IDBI into an universal bank would hit the roadblock as the law ministry delayed the proposed repeal bill by raising queries on the version finalised by the finance ministry and sent it for vetting, that has lead to finance ministry doing some rethink on the process of converting IDBI into an universal bank.
This should delay IDBI's conversion into an universal bank by a minimum of six months, as the repeal bill can now be moved in Parliament only during the next session.
In order to convert itself into an universal bank, IDBI is negotiating with a private sector bank with assets of around Rs 55,000 crore, which, when merged with IDBI's own assets of over Rs 66,000 crore, could catapult it into the No 2 position.
As per an earlier report, talks between IDBI and the private bank are at an advanced stage and the merger could be completed by June 2003.
IFCI, on the other hand, is shopping for funds abroad. It was reported, that IFCI borrowed a $100 million foreign currency loan at 50 basis points (bps) over the London Inter-bank Offered Rate (Libor) against a guarantee provided by the central government.
The amount is badly needed to repay (this month) its floating rate bonds raised in 1998 at 85 points above Libor. To enable the FI to tide over the severe asset liability mismatch, the central government agreed to provide a guarantee for Rs 800 crore borrowing, which could include the $100 million foreign currency loan.
Analysts said both IDBI and IFCI plan to transfer their bad debts to an asset reconstruction company (ARC), which will bring down their non performing assets.
Due to all the positive activities of restructuring and efforts to clean up their balance sheets, analysts said the outlook looks positive for the two financial institutions.
Meanwhile, both companies registered dismal first quarter results. For first quarter ended June 30, IDBI registered a massive 79 per cent fall in net profit to Rs 38 crore compared to Rs 182 crore in the corresponding period last year. Total income decreased 23.5 per cent to Rs 1,684 crore from Rs 2,201 crore in June quarter 2001.
IFCI reported a net loss of Rs 221.56 crore compared to a net loss of Rs 27.80 crore last year. Income from operations also dipped by 30.2 per cent to Rs 443.50 crore (Rs 635.55 crore).