Bob Rescues Ifci Based On Centres Pledge

The Centre has extened an "unconditional and irrevocable" guarantee to Bank of Baroda (BoB) for the lifetime of a five-year external commercial borrowing (ECB) which was raised by the beleaguered IFCI to redeem its $100 million floating rate notes (FRN) matured on August 19.

This is a first of its kind guarantee offered by the government to bail-out a financial institution in the overseas market.

According to market sources, the deal was concluded last month. Bank of Baroda has given the five-year loan to IFCU at a cost of 80 basis points over Libor. The all-in cost for the five year facility will work out over one percent over Libor.

"The bank has taken the entire exposure in its overseas books but sell to the market at a later date," market sources said. Bank of Baroda officials refused to comment on the development citing confidentiality.

IFCI is also negotiating with the banks and financial institutions to sell some of its foreign exchange assets.

It has sought a cash infusion of around Rs 5,000 crore by the Centre to prop up its capital adequacy ratio which is currently pegged at 3.12 per cent.

It is also seeking to recast its debt by stretching the maturity profile of the loans, reducing interest rates and converting part of the debt into equity.

The sanctions and disbursements of IFCI was more than halved in the financial year 2001-02. Sanctions of the FI reduced by 55.8 per cent to Rs 780.46 crore in March 31, 2002 from Rs 1766.45 crore the previous year while disbursements dropped by 50.12 per cent to Rs 1,075.67 crore from Rs 2,156.8 crore.

The institution has created a 'large asset management cell' to constantly monitor the health of large assets --where assistance of Rs 25 crore and above were given -- so that the 'good assets' in its books remain good.