Industrial Development Bank of India is commencing negotiations with institutional lenders for reduction in interest rate on loans worth over Rs 6,100 crore from various institutions.
Sources said that institution is also planning to seek government's interevention to negotiate the interest rate on loans worth over Rs 2,150 crore taken from Life Insurance Corporation, Rs 2,200 with Central Board of Provident Fund Trustees, Rs 1,300 crore from Unit Trust of India and another Rs 500-odd crore from State Bank of India.
The institution top brass is slated to meet finance ministry here tomorrow to discuss the state of affairs at IDBI. This would be the second meeting in a span of five days between the government and IDBI.
Finance ministry officials, however, said that the meeting is just a continuation of the meeting with finance minister Yashwant Sinha on Friday.
Sources said there was a need to restore the institution's tier-I capital in IDBI as IDBI proposes to write-off Rs 1,500 crore non performing asset, using general reserves, during the fiscal which will reduce its capital adequacy ratio from 12.2 per cent to 10.1 per cent.
The institution is also learnt to have informed the government that it had a need to borrow about Rs 12,000-15,000 crore every year. With rating agencies downgrading it, the cost of funds increases, sources added. the institutions also plans to exercise Rs 2,200 crore call option in March 2002. "IDBI said that raising resources to refinance may be difficult if situation worsens," said a source.
While seeking permission to issue Rs 3,000 crore worth tax free bonds every year, IDBI, sources said, said that there is a need to shore up capital by Rs 2,500 crore through 50-year bonds which should be recognised as tier-I capital. This it suggested could be done through long term hybrid instrument contributed by the government which could be worth around Rs 350 crore. The institution once again sought an extension in tenure of Reserve Bank of India loans. A proposal was also mooted to increase the tenure of long term World Bank loans worth around Rs 1,200 crore, routed through the government. During a meeting with finance secretary Ajit Kumar in August this year, IDBI had sought an extension in the tenure of loans from RBI to 50 years so that it could shore up its tier-I capital and improve the capital adequacy ratio.
In the first five months of the fiscal, IDBI is learnt to have told the finance ministry that both sanctions and disbursements have gone down over the corresponding period last year. At the same time borrowings have only increased marginally while provisions have shot up nearly three times the level in the previous fiscal which has put a pressure on the institution's bottomlines.
