OSFC-SIDBI pact delayed

The Orissa State Finance Corporation (OSFC) has been unable to sign the proposed tripartite agreement with the Orissa government and Small Industries Development Bank of India (SIDBI) with its net worth continuing to be in the negative.

The problem for the state-owned lender has further been compounded with its Capital to Risk Assets Adequacy Ratio (CRAR) remaining below 9 percent. Due to high level of non-performing assets (NPAs), provisioning norms of the Reserve Bank of India (RBI), high cost of borrowed funds and inadequate recovery of loans, OSFC became sick and cumulative loss reached Rs.381.58 crore by March 31, 2006. Feeling the necessity for restructuring of OSFC, the state government had appointed UTI Bank (now Axis bank) to formulate a revival package for OSFC.

The restructuring package prepared by the bank was approved by the OSFC board and subsequently, the state cabinet endorsed the package in December 2006. As part of the restructuring package, the state government had provided Rs 254 crore for liquidating the statutory liquidity ratio (SLR) bonds which was to be converted as state government’s equity in OSFC. However, the state finance department is yet to come out with the required notification, delaying the signing of areement with SIDBI, sources said.

“The Rs 254 crore infused by the Orissa government in OSFC for liquidating the SLR bonds was to be treated as state governments’ equity. The finance department is yet to come out with the required notification”, Hemanta Sharma, director, industries, Orissa government told Business Standard.

He said, once the notification comes out, it will make the net worth of OSFC positive and will increase its tier-1 capital. This will improve the CRAR to 9 percent enabling the OSFC and the state government to sign the agreement with SIDBI. SIDBI had agreed to restructure, re-phase the principal finance outstanding of Rs.197 crore to be repaid in monthly installments in ten years and to reduce the interest rate from 11.70 per cent to 8 per cent on existing principal outstanding.

The interest reate will further be reduced to 7.5 per cent after the execution of agreement with OSFC and the Orissa government. It has also agreed to waive 50 per cent of interest outstanding up to September 30, 2005.