Banks, Fis May Pick Ifci & #39;S Rs 1000 Crore Ncd

In another option being worked out by finance ministry to shore up the capital adequacy ratio of ailing IFCI Ltd, banks and other financial institutions are expected to subscribe to the Rs 1,000 crore non-convertible debenture issue of the cash-strapped institution.

Finance secretary Ajit Kumar has convened a meeting next week to discuss various restructuring options, including a merger with IDBI. IFCI chairman P V Narasimham and Industrial Development Bank of India (IDBI) chief S K Chakrabarti and Reserve Bank of India deputy governor S P Talwar have also been called for the meeting.

Sources said the proposal of a Rs 1,000 crore NCD issue has been mooted by IFCI as the institution is expected to default on the RBI stipulated CAR of 9 per cent. IFCI's CAR is expected to be around 8 per cent for 2000-01, though results are yet to be announced.

In view of this development, IFCI is asking finance ministry to bail it out immediately.

IFCI had asked the government for a Rs 400 crore assistance to improve its CAR. But finance secretary Ajit Kumar was against the idea and had instead suggested that IFCI be merged with IDBI.

At a meeting convened by special secretary banking Devi Dayal in April this year, IDBI chairman Chakrabarti expressed reservations against the move.

Sources said the meeting is expected to focus more on the proposed NCD issue and the possibility of banks and FIs which do not hold any stake in IFCI at present is not ruled out.

Also, the fact that the IDBI has not had a very impressive performance during the last fiscal has resulted in the government concentrating more on this option.

Sources said the NCD issue would be just sufficient for IFCI to cross the 9 per cent CAR level. "This is a temporary solution to the problem. Once the NCD is subscribed and the CAR bolstered IFCI will have to rope in a strategic partner, which would most probably be a foreign ally" said an official.

An expert committee headed by former State Bank of India chairman D Basu had also recommended that the government provide a Rs 400 crore assistance to IFCI and then the institution rope in a strategic partner.

IFCI executives maintained that an infusion of funds into the institution will not only help it in improving its CAR but also help it in improving its rating from the present A + level, which would help it in scouting for a better partner.