The Industrial Investment Bank of India (IIBI) has begun extending margin money to top corporates which may be suffering from a long-term working capital crunch.
The newly refurbished financial institution has already extended such funds to corporates in New Delhi, Mumbai and Calcutta last month.
The funds have been awarded mainly to corporate houses which have AAA rating and whose business interests concern engineering, chemicals and agro-based industries.
Sources were tight-lipped about the names of the companies which the financial institution (FI) was helping out.
We are undertaking this exercise as a short-term strategy to maintain the volume of business. We are sure of getting back our loans within the stipulated time period, said D Goswami, chairman-cum-managing director, IIBI.
Sources feel such short-term measures are necessary as the credit policy released by the Reserve Bank of India recently has substantially lowered interest rates. The IIBI move has left FIs wondering whether this trend is a temporary or permanent one.
As the interest rates are pretty low, the rate of capital formation will obviously be low, which does not spell good health for industrial development in the economy.
The new plan is expected to improve business prospects of IIBI to an appreciable extent and it is hoped that it will be instrumental in penetrating into the market and getting new clients as far as its term-lending activities are concerned.
What makes the atmosphere even more competitive is that banks are allowed to extend credit for project finance, a practice which was absent in the past. The Industrial Development Bank of India has also taken a policy decision to extend working capital loans as a short-term arrangement to maintain its business volume.
The bank hopes to finalise the results for 1996-97 by next month. From next year onwards, the Comptroller and Auditor General (CAD) will scrutinise the records of the bank.
This is a new feature which was not applicable for the erstwhile Industrial Reconstruction Bank of India of which the IIBI is the new avatar. The CAG comments on the performance of other financial institutions namely the IDBI, ICICI and the IFCI.
