IDBI's bad-asset fund gets FI status

In the run up to the conversion of Industrial Development Bank of India (IDBI) into a bank, the Centre today granted status of a `financial institution' (FI) to the Rs 9,000 crore Stressed Asset Stabilisation Fund (SASF).

Through this provision, SASF, which holds over Rs 9,000 crore sticky assets of IDBI, will be able to transfer its bad debts to asset reconstruction companies.

It will also enable SASF to invoke the Securitisation Act to recover sticky accounts.

The government has also notified today that October 1, 2004 will be the appointed date for conversion of IDBI into IDBI Ltd which will be a banking company regulated by the Banking Regulation Act 1949 and the Companies Act 1956.

The SASF was a special purpose vehicle created through a budgetary announcement to transfer Rs 9,000 crore of stressed assets from (IDBI) to clean up its balance sheet. The fund is to work as a trust managed by government officials.

It is understood that SASF, which was a special purpose vehicle, has been conferred status of an FI through an enabling notification so that it can pursue recovery of loans through Clause H2 of the Recovery of debts due to banks and financial institutions 1993, sources said.

IDBI Ltd registered with the Registrar of Companies last week. IDBI Ltd, which is expected to have an authorised capital of Rs 1,250 crore, will take over the assets and liabilities of IDBI.

In December last year, Parliament had cleared the repeal of the IDBI Act and corporatised the institution enabling it to undertake banking activity. Since then, the IDBI board has cleared a proposal to merge its subsidiary IDBI Bank with the institution.

IDBI Bank is likely to function as a strategic business unit for another three years till Damodaran's, chairman and managing director, IDBI term is over. On the SLR front the entity has received a five-year holiday from the government.