MUMBAI, FEB 22: As part of the bail-out package for Industrial Finance Corporation of India (IFCI), The Indian government will subscribe to Rs 400 crore worth preference shares of IFCI to help it shore up its capital adequacy. "We got a clear indication from the government that they would subscribe to IFCI's issue of preference shares. without the government subscribing, the capital adequacy will not come up to prudential levels," IDBI chairman G P Gupta told reporters. "It is only after the infusion of Rs 400 crore that the capital adequacy will become 9 per cent." The Reserve Bank of India's (RBI) rules require banks and financial institutions to attain a minimum capital adequacy ratio of nine per cent by March 2000. Last week, IFCI (which is saddled with huge non-performing assets) raised Rs 352 crore in capital through a rights issue of its shares, helped mainly by IDBI which invested Rs 101 crore. IDBI is the single largest institutional shareholder in IFCI - its holding stood at 28.74 per cent prior to the rights issue. Gupta said IDBI had decided to bail out the rights issue following an assurance from the government that it would pump in additional capital into IFCI. The government has already offered Rs 190 crore to IFCI as a grant to the beleagured term lender to use as capital. Gupta said IFCI's preference shares issue to the government will have a tenor of 20 years and qualify as tier I or equity capital. Gupta said there was need for a major restructing in IFCI which is saddled with large non-performing assets. "There is a need for a major restructuring in IFCI and we are working on the proposal. We have to appoint some committee or consultant and a study will have to be done," he said. IDBI to launch flexibond-8 issue MUMBAI: Industrial Development Bank of India (IDBI) on Tuesday said it will issue unsecured bonds to raise Rs 300 crore. The issue, which also has a greenshoe option of Rs 300 crore, will open on February 25 and will close on March 10, IDBI said. This is the second tranche of IDBI's flexibonds series in 1999/2000 (April-March). The term lending institution had raised Rs 1500 crore through the earlier tranche floated in July. IDBI Chairman G P Gupta said in view of declining interest rates the institution had decided to reduce the size of the debt issue. "Interest rates will have to come down. There has been some indication from the government about a lower interest rate when it reduced the rates on Public Provident Fund deposits. This is one of the reasons why we have reduced the size of the issue," Gupta told reporters. The government in January reduced rates on public savings schemes by 100 basis points. IDBI said the issue comprises four types of bonds - a regular income bond, a growing interest bond, a floating rate bond and an infrastructure tax-saving bond. IDBI said the regular income bond has a tenor of five years and will carry an annualised rate of 11.0 per cent, while the growing interest bond with a built-in step-up coupon will offer 9.75 per cent in the first year up to 10.5 per cent in the fifth year. IDBI's floating rate flexibond offers 50 basis points over the weighted average yield on 364-day treasury bills. The tenor of this instrument will be five years with a call and put option after three years. The infrastructure tax-saving bond offers 10.25 percent payable annually for three years and is eligible for tax concessions under section 54EA and section 88 of the Income-Tx Act, IDBI said. It had another option offering 10.5 percent for 85 monthsand with a tax consession under section 54EB. Gupta said he was prepared to cut his lending rates if interest rates in the system were lowered and his borrowing costs came down. "If we raise at lower rates we will give (funds) at a lower rate. We are concerned only about margins (spreads between borrowing and lending)," Gupta said. He said spreads were declining and would hit profitability. "The margins for everybody will come down in the industry. So that way profits will be lower for everybody but we will have to see how different players perform in comparision to each other," he said.
