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Institutional revamp on Cabinet agenda this week

Aditi Phadnis & P Vaidyanathan Iyer in New Delhi

The Union Cabinet will consider bailout packages for Industrial Development Bank of India and IFCI Ltd besides an ordinance to repeal the Unit Trust of India Act, this week.

Senior government functionaries told Business Standard succour for the ailing financial institutions will be through an issue of long-term tax free bonds.

For UTI, the finance ministry plans to issue securities with a tenure of 7 to 10 years, which will be tradeable on the secondary market.

Finance secretary S Narayan met UTI chairman M Damodaran on Monday and is scheduled to meet top officials of IDBI and IFCI on Tuesday to finalise the modalities of support to the two institutions.

Finance ministry sources said the plan to restructure UTI along with the ordinance to repeal the UTI Act has already been sent to the law ministry for comments and clearance.

"The ordinance is likely to be issued after Cabinet clearance by the end of this week," said a senior finance ministry official.

While the Cabinet is set to meet on Tuesday to consider issues like deregulation of natural gas prices, treatment of transactions between domestic tariff areas and special economic zones as physical exports and imports, the UTI ordinance is not on the agenda as yet.

According to sources, the government is planning to issue bonds to IFCI with a tenure of 20 years.

While IFCIs liabilities are to the tune of Rs 8,000 crore (Rs 80 billion), it was not quite as clear in the case of IDBI. The bailout plan for IDBI, they added, will also facilitate its conversion into a bank.

Finance ministry sources also said the interest rate on the bonds to be issued for UTI will be equal to that on government securities with a similar tenure.

If the bonds have a maturity of about 10 years, the coupon is likely to be about 7 per cent, they said.

The sources also said the finance ministry is expected to announce a series of reform measures linked to pension and capital markets.

There have been a series of meetings in the finance ministry to discuss measures for deepening of the government securities market and revving up the capital market.

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