Shareholders attack IDBI on mounting NPAs

MUMBAI, JAN 23: Worried shareholders of Industrial Development Bank of India IDBI finally attacked the term-lending institution for its ...

MUMBAI, JAN 23: Worried shareholders of Industrial Development Bank of India IDBI finally attacked the term-lending institution for its mounting non-performing assets NPAs in an extraordinary general meeting held here today.

Expressing deep anguish over the shoddy working of IDBI8217;s managerial and board members, the shareholders said that whatever confidence they have in the IDBI is due to its government ownership. Showing concern at the high NPA levels of the financial institution, they demanded that IDBI should improve recovery of the bad assets and refrain from funding risky ventures like film industry.

The IDBI share price has shown consistent fall since its public issue which was launched in 1995 at a massive premium of Rs 120. The share was quoting at Rs 50 on the BSE on Tuesday which has angered the shareholders. Moving the motion, IDBI chairman G P Gupta said the financial institution is serious about bad loan recoveries and their incidence will be lower this financial year as compared to March 2000.

The shareholders concern over NPAs stems from the fact that according the Reserve Bank India8217;s Report on Trend and Progress of Banking in India8217;, IDBI topped the NPA list by notching up bad loans worth Rs 7,675 crore by March 2000. In fact, its NPAs have gone up by Rs 1,185 crore from Rs 6,490 crore in the previous year.

He said IDBI would capitalise part of the reserve and premium accounts to issue bonus shares. The institution will also use the Rs 450 crore proceeds of Sidbi share sale to pay a dividend on enhanced share capital to its shareholders which will cost it Rs 396 crore for the fiscal 2001. 8220;We are confident of maintaining dividend at 45 per cent for the current financial year,8221; Gupta, whose tenure as IDBI chief ends this month, declared.

8220;This year IDBI has got the Sidbi share sale to bail out the dividend payout8230; but what it will do next year,8221; asked Mayur Mehta, an irate shareholder. Shareholders also demanded a buyback from IDBI which the chairman ruled out citing the IDBI Act which bars any share buy back from shareholders.

Later, the shareholders approved the proposal to issue three bonus shares for every five shares held by a voice vote and, for a change, clapped for IDBI bailing them out this year. 8220;I must thank IDBI for issuing me bonus share this year and bailing me out of financial difficulty8230; but who will bail IDBI out?,8221; asked a shareholder after the EGM.

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The record date would be fixed in consultation with the stock exchanges and bonus shares would be entitled for full dividend this fiscal, Gupta added. The shareholders supported the motion saying 8220;it will only be just a benefit on paper since the share price on bourses at Rs 50.80 was way below initial issue price of Rs 130 per share in 1995.8221;

The steep rise in NPAs has come at a time when Finance Minister Yashwant Sinha recently expressed his happiness8217; over the progress on the loan recovery front. Including the FI figures, the total NPA of the banking system amounts to a whopping Rs 80,000 crore. The recovery of this amount is sufficient to cover India8217;s fiscal deficit.

However, FIs had resorted to large scale loan reschedulements, interest waivers and bail-out packages in the last two years. quot;This is beneficial to both the FIs and borrowers. While FIs can report a smaller amount as NPAs, borrowers mostly big corporate houses can avoid their names in the NPA list,quot; said a former IDBI official, adding, quot;had FIs included bail-outs and reschedulements, the NPA figure would have gone up further.quot;

A major chunk of NPAs are accounted for loans to the priority sector which include entrepreneurs involved in agriculture, small-scale industry and those who are not able to generate their own finance to invest into their ventures. If a borrower does not return its interest and the principal amount even in instalments for two quarters of the stipulated time it is termed as NPA.

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According to the RBI report, the net NPA to net loans ratio of IDBI has gone up from 12 per cent to 13.4 per cent.

In a study on NPAs last year, the RBI itself had admitted that diversion of funds by promoters for expansion, modernisation, setting up of new projects and to sister concerns is mainly responsible for the rising NPAs in the banking system. This is the first time that the RBI was officially admitting that fund diversion by promoters as the major factor which pushed up NPA levels. The RBI study which covered the top 50 NPAs of 33 banks including 27 public sector banks and top six private sector banks as on March 31, 1997, had also blamed government policies, import duty changes, deregulation and weak credit appraisal skills among other reasons for the rise in NPAs in the banking sector.

FI funds were diverted in the 1993-96 public issue boom period when a host of companies raised funds to set up new projects. quot;Many of these projects are lying unfinished. Several promoters who took loans from banks and FIs have vanished. Further, the economic downturn in the 1986-88 period also contributed to the NPAs,8221; bankers said.