``The main reasons for the drop in profitability have been the NPAs and higher interest costs. We are now working out restructuring of the bad and doubtful loans, as well as our own outstanding liabilities,'' IDBI chairman and managing director G P Gupta told PTI.

``We will do a stringent reworking of the non-performing loans, involving extending of maturity in cases which are deemed viable,'' he said. Further, the financial institution (FI) is considering to lower interest rates for some of its borrowers who are finding repayment difficult due to high rates, on the condition that they pay 50 per cent pre-payment premium.

This would apply only to companies whose accounts were good and whom the FI would want to retain ascustomers, according to Gupta. In the case of its own liabilities also, the institution is thinking of measures to bring down cost of funds. ``Cost of funds were higher in this fiscal, leading to lower profits. This is because we have tended to borrow more on the longer side in relation to others,'' Gupta said.

``But more recently, cost of funds are coming down because we have borrowed a substantial amount of short-term funds,'' Gupta said. ``Further, wherever we have a call option in our high cost loans, we will exercise it to redeem them,'' he said adding the current softening trend in market rates would also help in bringing down IDBI's interest outgo.

``In April this year, we had raised funds at 14 per cent, and in August it was 12.5 per cent. In the next issue, we expect the rates to be even lower, as market rates are softening,'' Gupta said.

``With industrial recovery now firmly on tracks, the next six months are expected to be better,'' he added. IDBI is also planning to refocus its lendingoperations, shifting emphasis to textiles, power distribution, petroleum product pipelines, telecom, cement, roads and ports.

Gupta said another reason for the dip in the institution's profits was the the squeeze in margins, with more competition from banks on account of the good liquidity in the system.