Centre To Solve Idbi & #39;S Sfc Pie Issue

The government is stepping in to end the impasse of transfer of Industrial Development Bank of India's shares in state financial corporations (SFCs) to Small Industries Development Bank of India (Sidbi).

While IDBI intends to sell its stake in the SFCs to Sidbi at face value, the latter is against the proposal.

The finance ministry has convened a meeting of bank chiefs and IDBI and Sidbi top brass to work out a solution. The government would also decide on the Rs 3,600 crore capital infusion in the SFCs as recommended by a committee headed by former IDBI chairman and managing director G P Gupta.

 

Most SFCs, which promote local industry by granting easy credit, are deep in the red with the capital adequacy ratio of 13 out of the 18 SFCs expected to run into negative figures by the end of the current fiscal.

At the end of 2000-01, only three SFCs _ Delhi, Gujarat and Karnataka had CAR of above 11 per cent. Out of the remaining 15 SFCs, only three had positive and the remaining twelve had negative ratios, according to the expert committee report on restructuring of SFCs.

The expert committee had recommended that about Rs 3,200 crore should be infused into the SFCs to improve their capital adequacy ratios while Rs 230 crore will be required for funding voluntary retirement scheme, which has been recommended for the SFCs.

The committee has also recommended that in the long run the SFCs should be corporatised and converted into non banking finance companies where government equity should be brought down to 33 per cent. Once SFCs turn into NBFCs, they should also be given the option to convert into banks, the committee has said.

Even within the 18 SFCs, four namely _ Bihar, Orissa, Assam and Jammu and Kashmir would require a capital infusion of about Rs 1,065 crore. Bihar SFC alone is expected to need a capital infusion of about Rs 600 crore in order to check the erosion of capital adequacy ratio which is projected to be -1575 per cent by the end of the current fiscal and - 1809 per cent by the end of march 2000.

The committee has recommended that of the Rs 3,600 crore, Small Industries Development Bank of India (Sidbi) and Industrial Development Bank of India (IDBI) should contribute around Rs 900 crore, while the Reserve Bank of India and the central government contributing about Rs 1,800 crore and the remaining amount should come from the respective state governments.

The expert panel has recommended that the state government and IDBI and Sidbi should contribute to the recapitalisation amount in the 1:1 ratio on the one hand and RBI and the central government on the other.

The committee has also said that IDBI and Sidbi should convert part of their outstanding refinance in 20 years. Also, the cumulative preference share capital to provide support by way of tier-I capital. Preference shares should carry a coupon rate of 9 per cent for a four year period and thereafter at 10 per cent, the panel has said.