seeks tier-1 capital status
Our Banking Bureau
12 November 2001
Financial Corporation of India (IFCI), the troubled development
has insisted that the probable fresh capital infusion in it in the
near future by its institutional investors be treated as tier-1
capital. If the entire infusion is not allowed to be treated as
such by the RBI, IFCI will then again fail to meet the 9-per cent
capital adequacy norm, as stipulated for financial institutions.
To help IFCI to get out of its troubles, the government has
directed IDBI, SBI and LIC to provide Rs 600 crore to IFCI as
quasi-equity, which would be in the form of convertible
debentures, carrying an interest rate of 9.75 per cent. The
institutions would contribute Rs 200 crore each. The government
will also be contributing Rs 400 crore to IFCI in the form of a
But the RBI has observed
that debentures, under its current guidelines, do not qualify as
tier-1 capital, as it essentially comprises equity and reserves.
Thus preference shares of a 20-year tenure would qualify as tier-1
capital. IFCI would redeem the instrument after a period of six
years, depending up
on its cash-flow position.
IDBI alone has a 31-per
cent stake in IFCI and, along with SBI, LIC and UTI, holds more
than 51 per cent stake in the beleaguered institution. The
institutions are trying to sort out the issue for once and all.
of reports on IFCI