Stressed fund settles half of IDBI bad loans

Half of the Rs 9,000 crore of non-performing assets (NPAs) transferred to the Stressed Asset Stabilisation Fund (SASF) by Industrial Development Bank of India (IDBI Bank) have been settled for an amount 15 per cent higher than the book value.

SASF has settled NPAs with book value of Rs 4,410 crore for Rs 5,140 crore and the bad loans still left in its books as unsettled NPAs are chronic ones which would be difficult to resolve, according to a credit research report by Standard Chartered Bank on IDBI Bank.

"Although IDBI has rid itself of its NPAs by passing it on to SASF, the recovery performance of SASF is critical to IDBI as the faster SASF recovers the money, the earlier IDBI would be able to extinguish the non-interest bearing securities," the report said.

The erstwhile development bank had built up a large portfolio of NPAs owing to its exposure to commodity cyclicals. This led to a rapid build up of NPAs from 2000-01 onwards till 2002-03, culminating in IDBI ending 2002-03 with gross NPAs of 26.1 per cent and net NPAs of 14.2 per cent.

To alleviate IDBI's problems, the government stepped in to promote a special purpose vehicle (SASF) to acquire NPAs from IDBI in exchange for 20 eyar non-interest bearing, non-tradable bonds.

SASF is an independent special purpose vehicle managed by IDBI employees deputed to resolve the problem loans. SASF recovered cash of Rs 1,350 crore till September 2006, which is lying with IDBI in SASF's current account and would be used to extinguish the bonds of equal face value by March 2007.

The NPAs transferred related to 636 companies, of which 288 cases have been settled.

Of this, 74 cases with NPAs of Rs 290 crore have been fully paid and closed for Rs 350 crore, 202 cases have begun regular serciving after restructuring for total consideration of Rs 4,420 crore (Rs 3,890 crore book value) and 12 cases are under review to settle for an amount of Rs 370 crore (Rs 230 crore book value).