Govt May Offer Rs 700 Crore Budgetary Aid To Idbi

The Centre is likely to provide a Rs 700 crore support to the Industrial Development Bank of India (IDBI) in the third and final supplementary budget to help the institution restructure its liabilities and also reduce the interest rate on its line of credit from the Asian Development Bank (ADB).

The interest rate on the ADB loan of about Rs 1,000 crore is proposed to be reduced from the present level of 8 per cent to 6 per cent as suggested by the IDBI.

Institutional sources told Business Standard the Rs 700 crore support will help the institution in bridging the gap between the present rate of interest paid on borrowings from public banks and FIs and the restructured interest rate. The sum would be reflected in the supplementary that would be presented along with the general budget on 28 February.

While clearing the introduction of the IDBI Repeal Bill, the union cabinet had decided to extend a Rs 2,500 guarantee spread over five years (effectively meaning Rs 500 crore a year for five years) to bridge the interest rate gap. The Centre was to issue zero coupon bonds to those banks and institutions which agreed to a reduction in the interest rates on bonds issued by IDBI.

IDBI, however, approached the government with a request to provide a cash support instead of issuing bonds to 30-odd banks and FIs and also said that the Rs 2,500 crore support should not spread evenly over five years as the payment obligations were higher during the current and the next financial year.

In case of the ADB loan, IDBI had proposed a reduction in interest rates on bonds worth about Rs 2,000 crore issued by the Centre in March last year to take over IBRD and RBI