Industrial Finance Corporation of India Ltd will use the Rs 1,573 crore (Rs 15.73 billion) grant given to it by the government to liquidate retail liabilities amounting to around Rs 1,000 crore (Rs 10 billion) besides repaying dues to institutional investors who are not restructuring their investments.

While most banks, institutions and insurance companies have agreed to the restructuring proposal, some like Uco Bank are unwilling to go ahead with the proposal.

Uco Bank Chairman V P Shetty told Business Standard that the matter would be resolved soon and discussions were under way.

Dues of institutional investors like provident funds and the Army Insurance, who have not agreed to the debt restructuring plan pushed by the finance ministry, will also be cleared. On the retail side, millionaire and gift bondholders have agreed to accept pre-payment.

The institution has also approached the Reserve Bank of India to treat 50 per cent of the Rs 1,600 crore (Rs 16 billion) debt restructured by banks and financial institutions as Tier-I capital, which will push its capital adequacy ratio beyond the stipulated 9 per cent mark.

For almost three years now, IFCI has been unable to meet the RBI stipulation and has consistently received forbearance from it. At the end of March 2003, IFCI's capital adequacy ratio was estimated at around 3 per cent.

The central bank has approved a special dispensation for banks and financial institutions that participated in the restructuring of IFCI by allowing them to treat the restructured debt as standard assets, not requiring provisioning for bad and doubtful assets.

Under the restructuring plan, banks and institutions converted 50 per cent of the non-statutory liquidity ratio investments, with effect from April 2002, into zero coupon optional convertible debentures payable after 20 years.

They will, however, carry the right of recompense. The balance 50 per cent has to be reinvested for 10 years at a 6 per cent interest rate.

The overdue and principal on these investments on March 31, 2002, has been rolled over for 10 years from the maturity date. The overdue on preference share capital as well as outstanding preference shares yet to fall due will also be rolled over for 10 years at a 0.1 per cent interest rate.

While asking banks to reinvest SLR bonds at lower interest rates, the government had told them that it would bear the difference between the existing coupon and current government security rates on these bonds.

In the case of SLR bonds, the overdue interest rate at the end of March 2002 will be paid by IFCI, but the principal overdue from April 2002 will have to be reinvested by banks and institutions for 10 years.

The investments will earn interest equal to the yield on government security of similar maturity. The interest gap is to met by the government through budgetary support.