Financial Daily from THE HINDU group of publications
Tuesday, May 13, 2003
Financial Daily from THE HINDU group of publications Tuesday, May 13, 2003 |
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Money & Banking
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Corporate Bonds GSFC delays interest payment on SLR bonds — Facing liquidity crunch Rukmani Vishwanath
MUMBAI, May 12 THE Gujarat State Finance Corporation (GSFC) has delayed interest payments on its SLR bonds to banks. GSFC has confirmed that it could not make the payments due to a liquidity crunch. According to an official with a leading public sector bank, GSFC's half-yearly coupon payments, falling due on April 1, have not yet been received. When contacted, a GSFC official admitted delays in payments to several banks due to a liquidity crunch. "GSFC recently offered its employees a VRS which closed on April 19, due to which the corporation was faced with an outgo of around Rs 15 crore. This led to a temporary liquidity mismatch and we couldn't pay our half-yearly coupon dues." The GSFC official, who would not like to be quoted, said the corporation has apologised to banks for the delay in payment. GSFC has raised several bonds at rates between 11.50 and 14.50 per cent and these are due for redemption from 2004 to 2012. The delay in payment by GSFC comes close on the heels of the failure of Uttar Pradesh State Finance Corporation to honour its commitments on interest payments to banks on the due date. While most bankers have now sworn off investment in state-guaranteed debt, they still have outstanding investments in such bonds, which were raised by SFCs years ago at very high interest rates. Public sector bankers admit that they may not be able to do much in cases involving sovereign guarantees. "Our hands are tied," a senior official with a public sector bank said. "How can I invoke a state guarantee being a public sector enterprise? Even though I know, that it is a default, I cannot classify the state-backed bond as an NPA," he said. Bankers contend that such matters have been raised with the Reserve Bank of India repeatedly, but the central bank too, has not been able to resolve the issue. A case is that of the Madhya Pradesh State Government bonds, which again, carried an SLR status. When the State was bifurcated, into Chattisgharh and M.P., both the parties initially kept passing the buck on each other, when it came to coughing up the interest dues to banks. Bankers said at that time, State Bank of India was asked to reconcile the accounts with banks so that the matter can be dealt with properly. However, although SBI reconciled the accounts, the situation remains unchanged and banks have yet to receive payments in those bonds since last year. "Something needs to be done about the state-backed SLR bonds going bad. After all, it is the depositors money that is being invested in such instruments which come with a sovereign guarantee," said a banker.
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