As many as 30 public sector banks and financial institutions, which insisted in converting their loans to the once-troubled IFCI Ltd into equity, have taken hit of nearly Rs 800 crore as its shares have fallen 60 per cent in just two months.
The irony is that, in some cases, the shares have not even been credited to their account, but under the mark-to-market norms for listed securities, these banks and financial institutions have to write off huge losses incurred before the close of the financial year.
The biggest loser is Life Insurance Corporation of India, which converted debentures worth Rs 507 crore into equity, has seen the value of its holding erode more than Rs 300 crore.
LIC and others converted loans worth Rs 1,324 crore to IFCI into equity at a conversion price of Rs 107 per share. IFCI shares took a beating after it shelved plans to sell 26 per cent equity to a strategic partner. The losses extended as the broader stock market slipped in the following weeks amid a global financial turmoil.
The loans were given to IFCI in 2002 as part of a government-directed bailout plan for the troubled financial institution and carrying no interest.
“It is ironical, the stated owned institutions did not get any interest on these investment for six years, and now their investment has eroded by 60 per cent in just two months,” said a senior official at one of lending firms.
Worse, IFCI had initially proposed to convert only 30 per cent of the loans into equity and the rest into interest-carrying debt, but the banks and the insurance firms insisted on converting the entire amount into shares.
Among other big losers are Canara Bank, UCO Bank and Central Bank which have lost between Rs 50 to Rs 60 crore each.