New Delhi, Sept. 11: Ailing IFCI Ltd plans to metamorphose itself into a multi-product company, providing long-term credit to small and medium enterprises on the back of an expected restructuring package from the government.
The financial institution has decided to divide its business activities into two groups to synchronise with market demand—one, a corporate advisory and fee-based group to undertake more fee-based activities, and the other, a business development group.
Sources said the product range would consist of corporate and legal advisory services, project advisory and finance, project conceptualisation, corporate finance, credit syndication and infrastructure.
It will also deal in investment banking, which will include placement of debt and equity, mergers and acquisitions, external borrowing facilities and disinvestment, channelling foreign direct investment and corporate restructuring.
Further, IFCI will focus on speedy recovery of bad loans which account for a substantial 20.8 per cent of its non-performing assets (NPA). The Reserve Bank of India has fixed 15 per cent as the danger level.
“IFCI has regrouped internally to cater more effectively for speedy recovery of bad loans,” a senior company official said.
IFCI’s provision for bad and doubtful debts stood around Rs 760 crore. It has reported a higher loss of Rs 222 crore (due to an increase in non-performing assets and lower income) in the first quarter of 2002-03 up from Rs 27.8 crore in the year-ago period. Net loss stood at Rs 884.7 crore for the year to March 31, 2002.
Sources attribute the sorry state of finances of IFCI to the payment default by around seven to eight well-established corporate groups, each to the tune of Rs 800-1200 crore. And with cheap source of funds drying up due to discontinuation of SLR bonds from the RBI, coupled with multiple options before corporate houses to raise funds, the financial health of the financial institution deteriorated.
They say the bailout package will probably consist of a merger of good assets of IFCI and IDBI while the bad assets consisting of non-performing assets will be hived off to its asset reconstruction company—Asset Care Enterprises—a separate company with an authorised capital of Rs 20 crore.
But analysts opine that such a move might not have the desired effect as there are doubts over the so-called good assets.