IDBI to clear Rs 12,000 cr debt via redemption, prepayment

The Industrial Development Bank of India Ltd (IDBI Ltd) is planning to clear around Rs 10,000-12,000 crore of high-cost debt in the next financial year through redemption of bonds and pre-payments.

It has already prepaid over Rs 4,000 crore of high-cost debt during April to December 2004, a IDBI source said.

During January-March, the institution will redeem another Rs 2,000 crore of high-cost debt, he added. In other words, IDBI is prepaying and redeeming high-cost debt worth Rs 6,000 crore during this fiscal.

The erstwhile development finance institution had raised over Rs 16,000 crore via Flexibonds during 1997-2000 at rates varying between 11 per cent and 15 per cent. Flexibonds are instruments floated by IDBI to raise long-term money from the public.

These borrowings were done at a time when the prevailing rates were high. The institution has been carrying these legacy borrowings on its books.

With the sharp fall in interest rates and the bonds coming up for redemption as also the aggressive prepayments, the bank is expected to save on borrowing costs, said a senior IDBI official.

The institution has been replacing old bonds with fresh borrowings at a rate of around 6 per cent. It raised around Rs 800 crore at 6-7 per cent through Flexibonds. At present, IDBI's average cost of funds is 8.5 per cent, while the incremental cost of funds is around 6 per cent.

Despite repayments, the institution still has high-cost debt of around Rs 2,000 crore carrying an interest rate of over 14 per cent and Rs 12,000 crore at over 11 per cent. The institution plans to repay a major chunk of this debt by March 2006, the source said.