The Central Government gave its approval on 01.08.2001 to a Rs 1,000-crore bailout package for IFCI Ltd, and of this the government would contribute Rs 400 crore by way of investments in 20-year convertible debentures and the remaining Rs 600 crore by major shareholders of IFCI in appropriate instruments.Addressing a press conference here, the joint secretary in the banking division UK Sinha said that Finance Minister Yashwant Sinha met IFCI chairman PV Narasimham and top officials of IFCI’s major shareholders - State Bank of India (SBI), Life Insurance Corporation (LIC), General Insurance Corporation (GIC) and Industrial Development Bank of India (IDBI), also present were finance secretary Ajit Kumar and chief economic adviser Rakesh Mohan, along with deputy governor of the Reserve Bank of India GP Muniappan.

He said the debentures would have a call option, and the interest rate - which should be the normal rate - would be decided in a day or two and the funds would be available immediately. The government was not a shareholder in IFCI, but the debentures could be converted into equity at a later stage, however the FI too could exercise the call option and prepay the loans if it was in a position to do so and the shareholders who promised to consider favorably the fund infusion, would need to secure approvals from their respective boards and it is expected that they would contribute in the proportion to their holdings. The induction of funds - which will qualify for tier-I capital - was being made at the behest of IFCI and the Basu committee report recommendations submitted in December.

The joint secretary explained that the government was concerned about the health of IFCI and the impact on others if anything went wrong with IFCI, and took this unusual step in the interests of the financial health of the FIs and the general economy and the government hoped that with this package the FI would be able to achieve a turnaround and play an important role in industrial development.

Of the total fund infusion, about Rs 720 crore would be set aside for increasing capital adequacy ratio to over 9 per cent from the present 6.2 per cent and this would also enable the institution to tap the market for further funds in near future.

He pointed out that the additional funds were necessary to restructure the FI. It had been made clear to him that this was a one-time package, and he had in turn assured the minister that IFCI would take remedial measures.