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The Government of India has issued special securities for an amount of Rs.9000 crores towards creation of “Stressed Assets Stabilisation Fund” to address the problem of stressed assets of IDBI. The amount of Rs.9000 crores will be invested in non-interest bearing special securities of 20 year maturity with call option.
The transaction is budget neutral for the Government. The amount realized by SASF on the recovery of dues will be paid to the Government annually. The Government would redeem bonds of an equivalent amount, thus leaving IDBI with equivalent amount of cash. There would be no net out go from the Government. With the cleaning up of IDBI’s books, the net NPA position of IDBI is expected to improve leading to better credit rating and consequent ability to excess lower cost funds in the domestic and foreign markets to enable IDBI to compete aggressively for business. Given that IDBI is to continue to perform the development role, SASF offers Government a cash neutral, budget neutral approach to ensure that systemic risk is eliminated by dealing with IDBI’s asset quality problem in one go.
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