Search the Internet          Tips  Sites: Finance, Investment

RBI wants Rs 8.50-billion capital infusion in IFCI

Sidhartha

The Reserve Bank of India has sought an immediate infusion of Rs 8.50 billion into IFCI Ltd to meet the stipulated capital adequacy ratio of 9 per cent against the 6.7 per cent level at the end of March this year.

IFCI has, however, sought a Rs 10-billion bail-out package either through convertible bonds, direct equity or long-term preference shares.

Union Finance Minister Yashwant Sinha has convened a meeting of IFCI stakeholders on Wednesday to discuss the issue.

Sources said that IFCI has sought capital infusion as the best course of action since it would help in mobilising funds and improve its cash flow situation.

A meeting convened by finance secretary Ajit Kumar proved inconclusive with the stakeholders -including Industrial Development Bank of India, State Bank of India, Life Insurance Corporation and General Insurance Corporation and its subsidiaries-not agreeing to a capital infusion to bolster IFCI's capital adequacy ratio. The meeting was also attended by RBI.

The IFCI brass, finance ministry and RBI officials have been deliberating over the course of action in bolstering the FI's capital adequacy ratio ever since the rating agencies came out with their warnings last week.

IFCI had been seeking an infusion of Rs 4 billion since September 1998 to which the government has not agreed so far. While expenditure secretary CM Vasudev has been opposing the move for a budgetary support, the stakeholders have repeatedly voiced their opinion against any capital infusion.

The development comes in the wake of IFCI facing liquidity problems in meeting its redemption and interest payment obligation to the tune of Rs 11 billion this month.

In wake of the liquidity and cash flow problems, rating agencies are closely monitoring the institution for a possible downgrade.

Rating agencies have also said that the government or the RBI needs to bail out IFCI and its future rating would depend on the "timeliness and likelihood" of government support.

Finance secretary Ajit Kumar has already held two round of consultations with FIs and insurance companies for fund infusion while banking secretary Devi Dayal had also met IDBI and IFCI chairmen for a possible merger of the two institutions. IDBI, however, said that it was not interested in taking over the cash-strapped institution.

An expert committee headed by former SBI chairman D Basu had recommended an assistance of Rs 4 billion to IFCI.

Powered by

YOU MAY ALSO WANT TO READ:
The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report