Financial institutions' bid to pump more funds in the beleaguered Malvika Steel has hit another roadblock. Additional investment made by the Life Insurance Corporation (LIC) and the General Insurance Corporation (GIC) runs contrary to the investment norms laid down by the Insurance Regulatory and Development Authority (IRDA).
Insurance companies agree that the investment code of IRDA does constrain them to make further investment in the company, which is facing a shortfall of Rs 100 crore for project completion. Insurance companies are not permitted to invest in corporates that have turned into non-performing assets (NPAs). Moreover, instruments under consideration for investment have to be of at least 'AA' grade. This stipulation will not only impact further investment in Malvika Steel, but also affect the restructuring of a number of companies where dues have been outstanding for some time, said institutions.
Despite these constraints, insurance companies chiefs have not foreclosed the option of further investment in Malvika Steel.
LIC chairman G N Bajpai said that the state-owned insurance company will not violate regulatory issues. "However, special permission can be sought from IRDA if the institutions' take a consolidated view to invest further," he added.
LIC has taken special permission in the past from IRDA to take around 27 per cent stake in Corporation Bank, even as the investment norms laid down by the regulator do not allow for investment in excess of 20 per cent.
The IRDA norms do give a leeway permitting the investment committee to put money in instruments below AA grade. However, IRDA stipulates that investments approved by the committee ought not be rated less than 'A+'.
A decision on Malvika Steel is yet to be taken. Insurance company officials, however, have not ruled out the option of selling off the assets of the company for dues recovery. "There is little point in investing further funds in an investment that has gone bad. As we hold policyholders' money, we cannot add funds into NPAs," they said.
FIs exposure in the Rs 3,540-crore Malvika Steel project in Uttar Pradesh adds up to Rs 1,800 crore. Till now, IFCI has invested Rs 750 crore, IDBI lent Rs 500 crore, UTI Rs 250 crore, and LIC and GIC have each given Rs 150 crore. Institutions took over the control of the steel project as a precondition to extend further credit. The Vinay Rai-promoted Usha group sold 51 per cent stake to the FIs and mortgaged another 38 per cent to avail credit from the institutions. While the FIs have put a two-year moratorium on interest, they have yet to take a view on parting further funds for the completion of the project.
