"We are in talks with GE Capital to securitise some of the assets and the agreement is expected to be signed within a month. The plan is to securitise a basket of assets of varying maturity and quality. The objective is to reduce the cost of funds and open a new window for raising resources at competitive rates," sources in IDBI told The Financial Express.

A team of senior executives from GE Capital Corporation's Singapore operations has been in India for almost a month examining the quality of assets of the term-lending institution.

According to sources, no decision has yet been made on whether the insitution willcontuniue to carry the risk on the securitised assets or not. "We are yet to decide on whether the securitisation will be with or without recourse (to the institution). It could be even a combination of both. The assets will be sold at a premium," sources said.

Investment banking sources feel the logic behind the proposed securitisation deal could be to clean the balance sheet of the institution. "IDBI plans to hive off a large part of its sticky loans portfolio. In order to make the deal attractive, the institution will bundle its sticky loans with some very good quality (triple-A rated) assets. The total value of the deal is expected to be around Rs 5,000 crore," sources said.

Investment banking sources are surprised that the term-lending institution has not invited other participants to bid for the deal. "IDBI might have lost out on getting finer prices for its assets in the absence of other bidders," sources said.

IDBI officials, however, said that assets will not be sold at a discount. "All assetswill be sold at a premium, the quantum of which will depend on whether the institution will continue to carry the risk (on these assets) or not. This will be an on-tap deal and the IDBI will weigh the fund-raising options available," sources said.

The institution is set to disburse over Rs 2,500 crore over the next two months. IDBI's net profit in the first half has shrunk by 30 per cent from Rs 705 crore to Rs 496 crore during first half half of 1999-2000, primarily due to higher write-offs and interest cost. In the second quarter, the country's largest financial institution has posted an even steeper fall in net profit of 40.23 per cent to Rs 205 crore from Rs 343 crore in the same period last year. The IDBI chairman had attributed the decline partly to the arge cash balances which could not be deployed during the first quarter.

The institution's disbursement went up modestly by 9.1 per cent from Rs 6,618 crore to Rs 7,218 crore during the period. The sanctions of assistance under all its schemes duringApril-September period went up marginally by 3.1 per cent from Rs 12,988 crore to Rs 13,395 crore.

GE Capital Services is a 100 per cent subsidiary of General Electric Capital Corporationq, USA and is primarily engaged in corporate asset funding through term-lending, hire purchase, leasing, equipment finance, bill discounting and promoter funding. During the last five years of its operations in India, GE Capital has built up an asset base of Rs 2,600 crore, most of which is guaranteed by banks/corporates or secured against cash or asset collateral.

For the year ended March 31, 1999, GE Capital posted a total income of Rs 264 crore with a net profit of Rs 16 crore.

INSIGHT
Sound fund use a must
The securitisation deal makes a lot of sense for GE Capital as it finds an established avenue for deploying its funds; especially since it is unlikely to enter the deal without recourse for potential bad debts. From IDBI's point of view however the rationale does not appear very clear cut,since it cannot push its NPAs without a significant cost in addition to carrying a contingent liability.

The question is what does the FI need to raise the funds for? The management has lamented the fact that there are few avenues for deployment. The deal can only make sense for IDBI if they use the funds to retire high-cost liabilities of their own and bring down the cost of funds.
Aaron Chaze