New Debt Instrument (NDI) Rate of interest

IDBI vide its circular dated 25.09.2000 has increased the rate of interest on NDI assistance from 12.5%, 13.5% and 14.5% to 13%, 14% and 15% p.a. for ‘A’, ‘B’ & ‘C’ category SIDCs respectively.   These rates would be applicable to :

• all cases where NDI assistance has been sanctioned by IDBI on or after September 22, 2000;
• all cases where the relative agreement between the corporation and IDBI is executed on or after September 22, 2000, even if the assistance was sanctioned prior to September 22, 2000;
• all cases where the agreement between the corporation and IDBI is executed prior to September 22, 2000, but no disbursement of NDI assistance has been made till that date, and
• all partly disbursed cases will continue to be at the existing rates.

The Small Industries Development Bank of India (SIDBI) will contribute Rs. 25 crore to the Deposit Insurance Corporation (DIC) corpus carved out of the Reserve Bank of India outfit - Deposit Insurance and Credit Guarantee Corporation (DICGC). The government of India will be taking up the balance Rs. 100 crore making the stakeholding pattern 4:1. The draft scheme was discussed at a management meeting of the Indian Banks Association (IBA) in New Delhi on August 26, 2000.   According to the draft scheme circulated among banks, the scheme will cover only the incremental assets and the banks will have the option of not taking cover for any loans they want. The risk-cover premium can be absorbed by the bank or passed on to the borrowers. However, after factoring in the premium, the banks will not be able to charge more than 4 per cent over their prime lending rates (PLR) on such loans. The loans covered under the scheme will also not be allowed to have a third party guarantee or other collateral except for the assets created out of the loans which can be charged to the bank.

If the banks have an existing loan base which is not insured and want an insurance cover for their deposits, they can extend fresh loans to the borrowers for enabling them to pay up the old loans.   The new loans will then come under the insurance umbrella.  

IDFC to focus on fee-based income

The Infrastructure  Development Finance Company (IDFC) has decided to focus on fee-based activities pending pick up in disbursement of sanctioned loans. The company will be aggressively bidding for the Infrastructure consultancy services projects.

The Company, is also looking at opportunities for assisting states in their efforts to build policy framework for inviting private investment in the infrastructure sector. The IDFC has so far tied up with state goverment of Uttar Pradesh, Karnataka and Maharashtra in this regard and was looking at other states.

The IDFC has recently signed a memorandum of understanding (MoU) with UP State Industrial Development Corporation (UPSIDC) and has also formed a joint venture company, “Infrastructure Development Corporation of Karnataka”.  IDFC is also playing a key role in the “Committee for operation and maintenance of rural and urban water supply schemes” constituted by Maharashtra government. 

Sub-standard, doubtful and loss assets are NPAs

The GOI on 17.10.2000 informed the Delhi High Court that the “Sub-standard, doubtful and loss assets” have been declared as non-performing assets (NPAs) by it since 1992.

A debt becomes non-performing when it ceases to generate income for the banks, the finance ministry in an affidavit told a division bench comprising justice Usha Mehra and justice K. Ramamoorthy, which had issued a notice to it asking how NPA worth Rs. 51,000 crore had been created by various public sector banks. The notices were issued to the Ministry and RBI in August following a public writ petition by Social Reforms Welfare Association (SRWA) seeking CBI probe against bank officials. The RBI has initiated various measures for the recovery and to ‘curtail fresh incidents of NPA’.

Four GIC subsidiaries delinked

The GoI has delinked four subsidiaries of the General Insurance Corporation (GIC) and permitted each of them to increase its equity base to Rs. 100 crore from Rs. 40 crore presently to comply with the minimum capital requirement prescribed by the Insurance Regulatory and Development Authority (IRDA).

According to a notification issued by the Government on 17.10.2000 the four subsidiaries, New India Assurance Co. Ltd., National Insurance Co. Ltd., Oriental Insurance Co. Ltd. and United India Insurance Co. Ltd. will be hived off from the GIC. These will be converted into four separate companies. The shares of these subsidiaries, currently being held by the GIC, will be transferred to government. The subsidiaries had to be delinked from the GIC, as under the Insurance Regulatory and Development Authority Act, the GIC as an reinsurer cannot underwrite direct insurance business.

Henceforth, it will be mandatory for all the insurance companies, private and nationalised, to cede a prescribed percentage of their policy premium to GIC as reinsurer.

The move to change the GIC into the sole national reinsurer would require amendments in the General Insurance Business (Nationalisation) Act, 1972.

The activities, coverage and overall performance of State Financial Corporations (SFCs) have expanded considerably over the years. However, with the passage of time, their operations have thrown up several problems connected with the organisation, management, resource mobilisation, operational efficiency and overall financial health. Some of the SFCs have eroded their net worth and their operations have become moribund. With the introduction of financial sector reforms, the business environment of SFCs along with other financial Institutions is becoming Increasingly competitive. To enable SFCs to adopt themselves to the emerging environment and promote the growth of the small scale and tiny Industries sector in the desired manner, Government has recently enacted amendments to the State Financial Corporations Act, 1951 with a view to enlarging their shareholders base, providing them with greater functional autonomy and operational flexibility and consequent ability to respond to the needs of the changing financial system. Along with the amendments to the SFCs Act, 1951 a need has also been felt to restructure the SFCs for strengthening and revitalizing them. Accordingly, a high-level Committee has been set up under the Chairmanship of Shri G. P. Gupta, Chairman & Managing Director of IDBI for looking into the functioning of SFCs and to make recommendations for their restructuring and revitallsation.

The terms of reference of the Committee are as under :

• Identification of the role and status of SFCs in the emerging Indian Financial System
• Suggestions for operational, financial and organisational restructuring of SFCs to provide them with greater functional autonomy and operational flexibility
• Composition and adequacy of capital structure, particularly with reference to capital adequacy ratio of SFCs:
• Financial restructuring, recaptalisation and revitallsation of SFCs:
• Identification of sources through which restructuring and recapltallsation shall be funded:
• The Desirability and feasibility of potential mergers and amalgamation of various state level financial institutions.
• Measures for containment of non-performing assets:
• Profile of business and change of business-mix.
• To make any other recommendation as may be appropriate to enable SFCs to develop a proper strategy and plan of action that will go towards improving their viability and competitive position in the emerging financial system.