A senior ICICI executive told The Financial Express: "Ideally, all new projects in the manufacturing sector should have a debt-equity ratio of 1:2. We will be comfortable with this (debt-equity ratio)."

The institution will selectively look at funding projects having 1:1 debt-equity ratio as well. However, under no circumstances, it plans to relax the norms further, sources said.

Riding high on short-term corporate loans, ICICI has shown good growth in disbursement in the first half of the current fiscal. During the quarter ended June 30, 1999, ICICI's approvals aggregated Rs 12,561 crore against Rs 8,922 crore for thecorresponding quarter in the previous year, registering a 41 per cent growth. ICICI's disbursal aggregated Rs 4,422 crore against Rs 4,225 crore for the pervious year, posting a growth of 5 per cent.

ICICI's project finance assistance accounted for 73 per cent of approvals and 64 per cent of disbursals. Of the project finance assistance, large structured project finance transactions accounted for 60 per cent and 49 per cent of aggregate approvals and disbursals.

In line with ICICI'[s strategy of providing funding across the maturity spectrum during Q1 2000, short-term prime rate (STPR) and medium-term primce rate (MTPR) related disbursals accounted for 18 per cent and 12 per cent of total disbursals. ICICI's move of tightening lending norms for greenfield projects is significant against the back frop of insititutional decision of not taking any fresh exposure in five industries--steel, cement, paper, textile and Polyester till fiscal 2001. Institutions have collectively decided not to support anygreenfield projects in these five sectors over the next two years.

They have also put the heavy chemical industry on the watch list. However, commercial banks have not put caps on their exposures to any particular industry sector. The financial intitutions are also insisting that for greenfield projects promoters should bring in equity before funds are lent to them. Earlier FIs used to disburse term loans to projects ahead of the rasing of equity. Promoters of new projects, unable to raise funds through the equity route with no project in sight, are issuing fully-convertible debentures (FCDs) maturing between 18 months and two years.

INSIGHT

A sound move

The extraordinary tight norms proposed for greenfield projects could be a boon both for ICICI as well as industry. It will be recalled that the Arvind Mills chairman had recently pointed out that the financial institutions had funded a rash of unviable projects in the denim sector, which led to significant overcapacity. Currently, withovercapacity in most industry segments, not funding new projects makes sense. For ICICI, the move will reinforce its shift away from project to short-term funding.

-- Sarad Saraf