Monday, January 14, 2008

IIBI gets approval to sell its loan portfolio

Industrial Investment Bank of India (IIBI) is winding up its business in the move towards this the board members of the IIBI has decided to sell the entire loan book at one go.

The directors on the IIBI board have cleared the proposal to auction both the good and the bad assets of IIBI for cash in the past week. The company also took a decision of appointing Deloitte & Touche for selling the loan book.

When press person contacted, chairman of Allahabad Bank, AC Mahajan, who is holding concurrent charge of IIBI, he refused to comment. According to sources IIBI loan is having a loan of about Rs 1,000 crore and this includes both — standard and sub-standard assets. Sources stated that auction would be in line with CVC guidelines.



IIBI is government-owned bank; it started working towards winding its business way back in 2005 after the Industrial Development Bank of India rejected a government proposal to merge the Kolkata-based institution with itself.

From couple of years IIBI has stopped giving additional loans to corporates. Moreover, IIBI has already started reducing its staff, giving them a choice of joining other public sector banks. Earlier in this month, IIBI withdrew its membership from the corporate debt restructuring (CDR) forum — where lenders get together to resolve sticky assets.

The reason why the government chose to close IIBI is the high level of bad loans and poor capital. According to RBI data, IIBI’s capital adequacy ratio (CAR) was negative at 64%, while its bad loans stood at 13% for March 2006. It had a loan book of Rs 1,006 crore with Rs 874 crore of standard assets. As on March 2006 the balance Rs 132 crore was sub-standard and doubtful assets. Though details for 2007 are not available, RBI has given the indication that IIBI is in the process of voluntary winding up.

High level of bad loans in IIBI books has originated from its original avatar as an asset reconstruction company. Previous to being converted as a full-fledged financial institution as IIBI, it was in the business of acquiring and restructuring bad loan as the Industrial Reconstruction Bank of India.

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