IFCI plans to convert into a bank

IFCI move to venture into bank follows RBI guidelines for development financial institutions (DFIs) which recommend either a movement to universal banking or conversion into a non-banking finance company (NBFC) within a period of five years.

When asked about the time span in which the changeover would take place, Narasimhan said "it is difficult to say at this moment but it would be much ahead or around the RBI deadline." As a bank, IFCI would be focussing on corporate finance and there would be no retail operations, hesaid.

The regulatory and supervisory regime at present is much tougher for banks compared to DFIs. While the former are subjected to cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements, the latter are not subjected to any such conditionalities.

On being asked whether IFCI would be able to adjust to the stricter supervisory regimes applicable to banks, Narasimhan said, "we have to be prepared because regulatory environment for DFIs could also become stricter in future." Narasimhan said IFCI also had plans to venture into life insurance through a separate joint-venture company and had already tied-up with a foreign partner.

Refusing to divulge the name of the foreign partner, he said, "the name will be disclosed once the government comes out with clear policy guidelines for private sector participation in the insurance sector." "It will be a good diversification with good profit potential in the long-term," he said.

On funding to the steel sector, especially after IDBI, anotherfinancial institution decided to bail out some projects, he said "IFCI will not be able to take any exposure in the sector as it already had reached the maximum permissible limit."

As per the regulatory norms an institution cannot lend more than 15 per cent of its total outstandings to a particular sector. IFCI’s exposure to the steel sector stood at 12 per cent at the end of fiscal 1996-97, 13 per cent at the end of fiscal 1997-98 and is expected to rise to around 15 per cent as on March 31, 1999.

Moreover, no new projects were expected in the sector with the sector already having excess capacities in addition to competition from cheaper imports, he said.

IFCI would continue to lend to all other sectors with special emphasis on telecom, roads, bridges, power and textile he said adding the corporations exposure to all these sectors stood at about five to seven per cent.

On the fund mobilisation front for the current fiscal, Narasimhan said the institution was slated to come out with a 1:1 rights issueat par to raise Rs 350 crore to be followed by a public issue of bonds.

The bonds issue was earlier planned in the last quarter of 1998-99, but was postponed in view of the expectations about fall in interest rates, he said. "The decision to come out with rights issue was taken in view of the institution’s debt-equity ratio which has risen to 11:1 by March 1999 and to raise its capital adequacy ratio," he said.

When asked on the timing of the rights issue, he said "our merchant banker SBI Capital Markets Ltd will shortly file the draft prospectus with SEBI." On corporation’s performance in the fiscal 1998-99, he said “our board is slated to meet in the last week of May 1999 to finalise the results and all details will be made available after that.”