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ICICI, IFCI to invoke personal guarantees to trim NPAs

Prakash Chawla in New Delhi

Close on the heels of Infrastructure Leasing and Financial Services deciding to invoke personal guarantees against defaulters, Industrial Credit and Investment Corporation of India Limited and Industrial Finance Corporation of India would resort to this punitive step to reduce their non-performing assets or NPAs.

''Wherever we have personal guarantees, we will invoke them'', top sources at the IFCI said.

When asked whether the corporation had taken this extreme step in the past, the sources said: ''Whether we have done in the past or not is immaterial, we will invoke personal guarantees if needed.''

Many of the IFCI's exposures are backed by personal guarantees of borrowers, including big-time industrialists.

ICICI Limited sources said they are also determined to reduce their NPAs and invoking personal guarantees is one of many ways being resorted to by the company. ''We have these guarantees and will invoke them,'' ICICI sources said.

The asset quality of the banking and financial sector has deteriorated in the last few years because of many sectors like steel, cement and manufacturing facing severe recession. The IFCI has an alarming level of NPAs of 20 per cent while for ICICI it is 7.6 per cent.

Both these institutions have been making efforts to reduce the NPA level and taken special initiatives including formation of special groups.

The initiatives include increased emphasis on corporate governance and active role of the institutions' directors on the corporate boards even if there is a resistance from industry.

Bombay-based IL&FS recently invoked personal guarantees against Delhi-based industrialists. The guarantees have been invoked against their houses and farmhouses.

The total NPAs of the Indian banking sector have exceeded Rs 450 billion. According to ICICI managing director and chief executive officer K V Kamath, the financial intermediaries in future would take recourse to the cash flows on the infrastructure projects like telecommunication and power. He admitted that the FIs had done a mistake by not taking recourse to the cash flow.

UNI

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