The Hindu Business Line : IDBI's assets set to shrink Rs 3,500 crore

THE largest financial institution in the country would perhaps be testimony this year that the term lending market is in a shambles. Industrial Development Bank of India's (IDBI) total assets are likely to shrink by at least Rs 3,500 crore.

Top officials estimate the premier term lender's assets to contract by at least five per cent for the year ended March 31, 2002.

According to highly placed institutional sources, the FI's assets have shrunk to well below Rs 70,000 crore. IDBI's total assets had reduced marginally last year to Rs 71,783 crore as on March 31, 2001. For the year ended March 31, 2000, the figure stood at Rs 72,285 crore.

The shrinkage in assets is attributed to poor credit offtake, the institution reducing exposures to lower-rated companies, lack of long-term lending opportunities, and prepayment by borrowers.

Even though the total assets have reduced, the institution is likely to present a stronger balance sheet. IDBI has completed the formality of rolling over the LTO (NIC) and IBRD funds that were to mature over the next few years up to 2008.

The rollover has helped the financial institution bolster its Tier I capital, improving the capital adequacy ratio to about 17 per cent as of April 1. The extension of the funds would allow IDBI a leeway of about Rs 2,000 crore for provisioning.

But instead of showing a higher capital adequacy ratio, IDBI is likely to clean up the balance sheet by increasing provisions. It would mean the capital adequacy ratio would remain at the current level of around 15 per cent, but its coverage ratio would improve substantially.

According to the sources, the entire gains of the rollover of the long-term funds would be used to increase coverage of non-performing assets (NPA). Currently, the level of net NPAs of IDBI is at about 14 per cent. The FI intends to bring down the net NPA level to single digits. The total provisioning, including the regular provisions, this year is expected to be more than Rs 3,000 crore.

The task of bringing down the net NPA level would be a bit tricky because of the shrinkage in assets. Even though the FI is accelerating the provisioning, the NPA ratio would not come down proportionately because it would be in the background of a relatively smaller assets basket.

The sources said even though total assets hade contracted, the institution's balance sheet would be strengthened considerably. The increased capital adequacy would strengthen its resource-raising capabilities. IDBI is planning to approach the credit rating agencies with an improved balance sheet to get a ratings upgrade.

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IDBI's assets set to shrink Rs 3,500 crore