The game plan is to securitise the outstanding loans by putting it on offer to bidders, both in public and private sector. State-run banks and institutions are also expected to participate in the sell-off along with international financial firms.

The funds mopped up through the process will be utilised to handle the Government's fiscal overhang.

Some of the loans given to blue-chip PSUs are expected to fetch a premium in the market. Companies like ONGC, NHPC, NTPC (see chart) have been advanced large amounts by the Government. These asset portfolios will be picked up in no time in the market, ministry sources claim.

The point of worry for the ministry is thebad-loans portfolio, which is a substantial chunk of the total lending to PSUs. Roughly Rs 3,000 crore has been advanced to two perpetually sick fertiliser PSUs, Hindustan Fertiliser Corporation and Fertiliser Corporation of India. These portfolios will go at a huge discount to the book value of the loans, if not entirely written off.

Similarly, a large number of sick PSUs under the industry ministry, have debts owed to the Centre on their books. The textile ministry behemoth, National Textile Corporation, has drawn loans worth Rs 3,000 crore from the national exchequer.

Some loans - like the Rs 900 crore advanced to the Food Corporation of India - may be difficult to quantify and securitise given the nature of work done by the corporation.

The ministry is grappling with modalities for calculating the rate of discount that should be applied to bad loans. The discounts will vary depending upon the nature of sickness, and some loans have to be written off. Sources said that it is this process ofapportioning a correct value to loans, that are unlikely to be repaid, which is going to be the most difficult. Consultants are expected to be appointed to complete this task so that a reaslistic picture is available.

One point of view within the ministry is that segments of bad loan portfolios should be lumped with premium grade loans and a package containing both should be put up for bidding. By this method, the Government will not end up only with a bad-loan portfolio. But it is a moot point whether such a formula will be acceptable to buyers.

A series of high-level meetings, in which the financial sector is expected to participate, have been planned in the coming months to give shape to a feasible plan to securitise Government loans to PSUs.