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Govt plans Rs 8,000 crore IFCI bailout

P Vaidyanathan Iyer in New Delhi

After providing package of Rs 14,561 crore (Rs 145.61 billion) to the Unit Trust of India, the finance ministry is working on a Rs 8,000 crore (Rs 80 billion) bailout plan for the beleaguered IFCI Ltd.

It is also in favour of a structured and orderly winding up of the institution.

According to senior government officials, the proposal will soon be taken up by the Cabinet Committee on Economic Affairs.

The financial assistance is likely to be provided through issuance of government bonds. This would mean there is no immediate cash outgo for the government.

While the government hopes to realise more than 25 per cent from the bad assets, estimated at over Rs 10,000 crore (Rs 100 billion), the good assets can be sold piece-meal to several buyers.

Once the shortfall of Rs 8,000 crore on floating rate notes, retail investors and provident fund liabilities are taken care of, it will not affect the financial system.

As with UTI, the IFCI package will involve categorising the assets and liabilities of India's oldest institution into good and bad on the lines of the recommendations made by McKinsey & Co.

The consultant, appointed by IFCI, had submitted a revival blueprint two months ago. The report will form the basis of the government's restructuring strategy.

IFCI's total assets, as on March 31, 2002, stood at over Rs 17,500 crore (Rs 175 billion). Standard assets accounted for Rs 13,650 crore (Rs 136.50 billion), sub-standard ones Rs 895 crore (Rs 8.95 billion) and doubtful ones Rs 3,002 crore (Rs 30.02 billion), IFCI stated in its annual report for 2001-02.

McKinsey has, however, said the non-performing assets amount to Rs 12,200 crore (Rs 122 billion). It said 25 per cent of the NPAs could be recovered.

According to government officials, once the assorting is complete, the good assets of IFCI can fetch a premium. The bad assets will be transferred to Asset Care Enterprises Ltd, set up by IFCI with an authorised capital of Rs 20 crore (Rs 200 million).

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