Mumbai, Sept. 12: Industrial Finance Corporation of India (IFCI) is not averse to the idea of roping in a strategic partner even as it is in talks with foreign banks to turn over hard-to-recover loans to potential investors.
The institution has warmed up to a McKinsey-suggested proposal under which it would be split into two entities. One of that would be what it calls a “bad bank”, which would take over its mountain of non-performing assets (NPAs). The other, dubbed a “good bank”, would have an asset base Rs 13,600 crore, and will lend to small and medium-scale industrial enterprises. Partners are being courted for both outfits.
The Delhi-based financial institution (FI) has set up Asset Care Enterprises, an asset construction firm with an authorised capital of Rs 20 crore, to take over its sticky loans.
Chairman and managing director V. P. Singh said talks with Deutsche Bank for finding investors of stressed assets are under way. Without disclosing the identity, he said the bank that could take IFCI’s problem assets has done so earlier in countries like Korea.
In Delhi this morning, he ruled out liquidation, but said the options like merger with IDBI and roping in strategic partners were open. “Liquidation is not the option. I don’t believe that financial institutions have lost their relevance. The way out is to restructure IFCI, which has financed more than 4,800 companies so far.”
McKinsey, enlisted by the institution to suggest a revival blueprint, came up with two options: Merger with an entity turning into a universal bank (read IDBI) and a two-way split. IDBI is not interested in the idea.
Singh made it clear that IFCI’s capital woes would not go away even if the institution manages to recover a third of the unpaid loans — Rs 14,000 crore at last count.
Speaking at a two-day conference organised by the Federation of Indian Chambers of Commerce and Industry (Ficci) on Indian Banking: Global Benchmarks, Singh asked the government to announce a bailout package.
Talking on the theme, turnaround strategies for financial institutions, he said one of the major reasons why his institution performed poorly on the asset front was the decision to finance industries like steel, textiles, sugar and cement — all of which have suffered in the liberalised era.
On liabilities, IFCI is saddled with borrowings that have to be serviced at the onerous rate of more than 17 per cent. Singh said he is trying to restructure high-cost debt by bringing down interest rates and extending the period of repayment. Yet another problem, he said, was the practice of development financial institutions only taking on risks —not the upside — in project finance; retaining talent was also a challenge.
In a comparison, Singh pointed out that outstanding bank loans in China are 120 per cent of its gross domestic product, while corporate debt accounts for 1 per cent of the national income. India, in contrast, has thrown up figures 3 per cent and 10 per cent respectively.