Govt may clear IDBI's Rs 450 crore arrears

The government is expected to clear IDBI Ltd's arrears of around Rs 450 crore (Rs 4.5 billion) in the first supplementary demands for grants.

The arrears pertain to last year, when the government did not release Rs 320 crore (Rs 3.2 billion), which were due to the financial institution as part of a decision to lower IDBI's interest liability to state-owned banks and insurance companies.

Another Rs 134 crore (Rs 1.34 billion) are due to IDBI on account of the Centre's contribution to the stressed asset stabilisation Fund. Though the government was supposed to release the amount, it backed out at the last moment in an attempt to lower expenditure and contain the Centre's fiscal deficit.

Officials said IDBI had put forward a fresh bill of Rs 500 crore (Rs 5 billion) for the Centre's contribution to meet the interest liability and another Rs 1,500 crore (Rs 15 billion) for SASF recoveries.

The government is, however, yet to decide on the release of Rs 2,000 crore (Rs 20 billion) to the bank.

The IDBI management has sought a further interest rate reduction on debts to banks and insurance companies. Two years ago, the interest rate had been reduced to 8 per cent and IDBI has now approached the finance ministry for a further reduction -- to 6 per cent.

IDBI also wants the government to allow it to issue capital gains tax-exempt bonds under Section 54 of the Income Tax Act.

The move is expected to help the bank lower its cost of capital from the present level of 7.9 per cent.

It has also proposed that the Centre reduce the interest rate on a line of credit of around Rs 1,500 crore (Rs 15 billion) from the Asian Development Bank from the present rate of 11 per cent.

IDBI is willing to pre-pay the liability in case the government is unwilling to reduce the interest liability. The matter had been raised with Finance Minister P Chidambaram during a presentation made to him recently. But the finance ministry is yet to decide on the proposals.

The government has, however, decided that IDBI will have to fill up the vacancies in the scheduled caste and scheduled tribe categories over a specified period of time.

It has also been decided that the difference in the pay scales of the employees of the IDBI Bank and IDBI employees will be done away with over a three-year period.