IDBI and IFCI weakened significantly today on reports that the market regulator has commenced a probe into insider trading in the stocks of the two term lenders.

The reports compelled Industrial Finance Corporation of India (IFCI) to drop 4.55% to Rs 7.15 and Industrial Development Bank of India (IDBI) by 3.17% to Rs 32.10, by 10:45 IST. Over 50,000 shares were recorded as volumes in each of the two stocks. 

The current fall in the stocks was preceded by a solid rise, in fact. Between 7 May and 13 June 2003, IDBI and IFCI had risen 94.5% and 84.5%, respectively. Rumours that the restructuring packages for the two troubled financial institutions have been finalised were the main cause for that strength.

Reports surfacing today have stated that both IDBI and IFCI have come under the Sebi scanner over the issue of insider trading. The market regulator has already sent letters to 15 mutual funds seeking details about investors who had invested over Rs 10 lakh in any of the MFs' schemes with IDBI and IFCI in their portfolios.

Among the mutual funds receiving the Sebi notice were Alliance, Zurich, HDFC, Kotak, Prudential ICICI and Birla Mutual Fund.

IDBI and IFCI were earlier part of a rally in bank stocks that emerged with the implementation of the Securitisation Act in November 2002. The Act has proved a virtual boon for the two term lending institutions as it enables them to attach assets of defaulting borrowers without their having to go to court for the purpose.

For Q4 ended 31 March 2003, IDBI registered a 15% rise in net profit to Rs 209 crore (Rs 182 crore) on a marginal 0.6% increase in total income to Rs 1,902 crore (Rs 1,891 crore). For Q3 ended 31 December 2002, IFCI reported a huge net loss of Rs 95.12 crore, compared to a net loss of to Rs 48.09 crore last year. Total income dipped 32% to Rs 444.37 crore (Rs 655.42 crore).