The Hindu : Govt. to take up cause of financial corpns.

Online edition of India's National Newspaper
Sunday, Jan 12, 2003

Southern States

Southern States - Karnataka-Bangalore

Govt. to take up cause of financial corpns.

By S. Rajendran

Bangalore Jan. 11. On the lines of steps taken in other States, the Karnataka Government has decided to take up the cause of State-run financial corporations (SFCs) which are in doldrums because of the high interest rates charged by the Small Industries Development Bank of India.

The Union Finance Minister, Jaswant Singh, is expected to arrive in Bangalore on Sunday, and the Government will make efforts to draw his attention to the increasing interest burden on the Karnataka State Financial Corporation (KSFC) which, until a few years ago, was considered one of the best-run SFCs. If Mr. Singh is preoccupied with other engagements, the Chief Minister, S.M. Krishna, will write to the Centre in this connection, and a delegation of Finance Department officials will meet their counterparts in New Delhi.

The argument being put forward by the State Government, which has prepared a document on the SFCs to be submitted to Mr. Jaswant Singh, is that the corporations have little choice but to bring down the interest rates at least to the levels charged by commercial banks to enjoy a better clientele. SIDBI has given loans to SFCs at a high interest rate between 11.5 per cent and 13 per cent, and the latter has extended loans at about 16 per cent. In contrast, loans in the market, particularly for the housing sector, are available at nine per cent interest.

The KSFC Managing Director, V. Umesh, told The Hindu here today that the accumulated losses of the KSFC was about Rs. 450 crore, and it could be wiped with the cooperation of SIDBI and the Union Finance Ministry. The KSFC had borrowed about Rs. 900 crore from SIDBI at interest rates between 11.25 per cent and 13 per cent, he said. "Incidentally, the KSFC has been prompt so far in the payment of the interest to SIDBI, although the repayment of the principal amount is difficult. If the high interest rates continue, the day is not far off when the KSFC will be unable to even pay the interest,'' he added. In the State Government's view, the refinance rates of SIDBI should be pegged at six per cent.

NPA of Rs. 900 cr.

Mr. Umesh said the non-performing assets of the KSFC were about Rs. 900 crore, and the KSFC had sought the intervention of SIDBI to give a one-time settlement opportunity to defaulters. SIDBI, which had an equity stake in the KSFC along with the Industrial Development Bank of India (IDBI), could raise its equity from Rs. 100 crore to Rs. 350 crore. The State Government was ready to raise its equity stake by an additional Rs. 150 crore if SIDBI accepted the proposal. An interest rate between six and eight per cent could be charged on the balance of loans with the SIDBI.

Committee's report

The Chief Minister has sought the implementation of the report of the Gupta Committee, which went into the subject of restructuring State-run financial corporations.

The committee has said that there is good potential for reviving 14 of the 18 SFCs, and recommended an equity support of Rs. 2,450 crores to them in the ratio of 25 per cent by State governments, 25 per cent by SIDBI and IDBI, and the balance of 50 per cent by the Union Government and the Reserve Bank of India. Further, the additional equity of SFCs should be raised over a period of three years, and the Government should constitute a high-powered committee to oversee the immediate implementation of the recommendations. Mr. Umesh, who has made efforts to revive the KSFC and reduce the accumulated losses, said the corporation could achieve a turnaround in about two years with an appropriate policy which largely centred on interest rates.

Since its formation in 1959, the KSFC had sanctioned loans of Rs. 6,500 crore to over 1.6 lakh clients, and helped create employment opportunities for nearly six lakh people, he pointed out.

The State Government, on its part, has said that it will extend all possible support for the revival of the KSFC and provided a guarantee for nearly Rs. 750 crore in respect of the bonds issued by the corporation and the private placement bonds. What has, however, upset the Government is the silence maintained by SIDBI and IDBI over the reduction in the interest rates though they are equity partners in the KSFC.

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