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Rs 28.81-bn govt assistance for 3 FIs

Sidhartha

A day before the close of the 2001-02 fiscal, the government provided an assistance of Rs 28.81 billion to three financial institutions, Exim Bank, Small Industries Development Bank of India and Industrial Investment Bank of India, to bolster their Tier-I capital. One-third of the amount can be treated as Tier-I capital by the institutions.

The assistance is in the form of conversion of the Reserve Bank of India's National Industrial Credit-Long Term Operations loans into 20-year debentures, for which the government issued bonds amounting to Rs 22.93 billion in favour of the central bank.

In addition, the government converted NIC-LTO loans in IDBI's books, amounting to Rs 9.20 billion, and converted a World Bank line of credit of Rs 9.74 billion into 20-year convertible debentures carrying a coupon rate of 11.88 per cent. Including the NIC-LTO assistance to IDBI, the bailout amount, sanctioned on March 30 rises to Rs 40.39 billion.

Finance Minister Yashwant Sinha had announced the assistance for IDBI in his Budget speech, but chose to ignore the other institutions.

With the latest assistance, financial institutions and banks received nearly Rs 60 billion as bailout in various forms. The amount includes Rs 13 billion provided to Indian Bank to shore up its capital adequacy ratio, Rs 4 billion to IFCI for the same purpose and Rs 3 billion to the Unit Trust of India to meet the shortfall between the assured return price on its US-64 scheme and its net asset value.

The largest chunk of the largesse has gone to Sidbi, which received Rs 21.73 billion against its NIC assistance of Rs 17.29 billion. Exim Bank received Rs 5.59 billion against its NIC obligation of Rs 4.45 billion and IIBI received Rs 1.49 billion. This is the second time in as many years that the government has provided assistance to IIBI. The amounts have been provided for in the third and final supplementary demand for grants for 2001-02.

Unlike the other bailouts, including the assistance to IFCI and Indian Bank, assistance to the four FIs would involve a cash outgo of Rs 15.38 billion. It will, however, be matched by savings from other heads.

This is on account of a difference in the yields of bonds issued by the Centre to the RBI and the ones subscribed to by the government and issued by the four FIs.

RBI Deputy Governor Y V Reddy told reporters on the sidelines of the CII's banking summit in Mumbai that the government privately placed Rs 32.13 billion with the Reserve Bank of India.

This is the long-term operation fund which was given by the RBI to IDBI, EXIM, Sidbi and IIBI earlier and transferred to the government. The government in turn placed bonds with the RBI which the central bank will sell through its open market operations. It has been done to clean the RBI books.

"These bonds will be marketable now. The debt has transferred from the RBI books to government's books. These institutions will now repay to the government and not the RBI," he said.

According to the terms of the assistance, the government reserves the right to extend the tenure of the loans or convert the amount into equity at the end of the 20-year period. Also, the Centre can forgo the interest if any of the institutions is not in a position to honour its commitments.

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