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After-effect of Essar FRN default: IDBI says no to steel projects

A day after Essar Steel defaulted on its $ 250 million Floating Rate Note redemption, the Industrial Development Bank of India today said it would no more finance any grassroot steel project and reiterated its stand that it is not in the business of bailing out corporates.

Addressing a press conference in New Delhi in connection with the bank's forthcoming Rs 7.5 billion Flexibond issue, IDBI executive director Surender Kumar Kapur said that the bank would also not be willing to lend to new petrochemical projects, given the international slump in the industry.

Justifying the IDBI's refusal to bail out the Essar Steel's issue, Kapur said that the decision was taken at the highest level at the meeting of the heads of financial institutions keeping the IDBI's and other FIs' interest in mind.

''If we start bailing out companies, who will bail us out? You have seen what happened to US-64 Scheme,'' Kapur said, adding that the bank would not be able to maintain its premier position if it started helping companies in distress like Essar Steel. ''How long we can remain the premier institution''?asked Kapur.

The IDBI has 13 per cent of its portfolio in iron and steel, the sector which is facing one of the worst crises in the recent past. Most of the steel projects ran into rough weather as the market for steel collapsed right at the time of their commissioning. The so-called steel package approved by the institutions proved to be a non-starter.

Referring to downslide in the performance of the IDBI in the last financial year, Kapur admitted there was a lack of monitoring the asset quality. This resulted in the bank's non-performing asset going up from 10.1 per cent to 12 per cent.

Kapur said IDBI would try to ensure that the NPA level of 12 per cent should not go up. ''We will do intensive monitoring and take follow-up action,'' he said.

The IDBI execuive director said not all the NPAs were strictly NPAs as some of them were recoverable and backed by collaterals. But in the same breath, he agreed that the collaterals were not easy to enforce unless laws were changed.

The IDBI's net profit had decreased to Rs 12.26 billion in the fiscal year ended March 1999 from Rs 15.01 billion last year.

Kapur sought to assure 3.3 million investors in the Flexibonds series that things would improve for the bank and there was no cause for concern over the safety of their investment.

The latest Flexibonds-7 series offers four instruments to suit the different needs of investors. These are Regular Income Bond, Growing Interest Bond, Deep Discount Bond and Retirement Bond.

UNI

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