Non banking finance major IFCI is positive on bringing down its gross NPAs to around 20 percent by March 2014. Its CEO and MD, SB Nayar says that asset quality is likely to improve going forward.
We normally cannot compete with the banks in long-term lending.
CEO & MD
Financial consultancy firm IFCI is confident of reducing its gross non performing assets (NPAs) by March 2014. CEO & MD SB Nayar told CNBC-TV18 that sanction of loans to top corporates in the past few months will reflect on its balance sheet and bring it (NPAs) down from 25 to 20 percent going ahead. The company also aims to increase its net interest incomes (NIIs) from 1.7 percent to 2-2.5 percent.
Nayar further added that IFCI's focus will be on improving its asset quality.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Whenever a new management takes over a bank or a financial institution, we see a bit of cleaning of the balance sheet and bad assets are normally written off. Is asset quality hence going to worsen for IFCI in FY14?
A: IFCI’s asset quality is already bad. Gross non-performing assets (NPA) is 25 percent and net NPA is about 11 percent. My effort will be to recover the NPAs wherever possible so that slippage doesn’t take place and build-up the assets. The NPAs went up because the balance sheet shrank in the last one year.
Q: The ratios are very high; both gross and the net NPAs. What will be your endeavour in terms of bringing them down to? Are there any targets that you are working with?
A: My aim is to bring it down to 20 percent level by September. It may not be possible because the disbursement there is some delay although we have sanctioned. For example, last March our lending portfolio was about Rs 14,000 crore.
In the last four-two months, we have sanctioned about Rs 4,700 crore to top corporates, who were not coming into IFCI earlier. But the disbursement will take some time. The reflection on the balance sheet may take a little while. So, by March 1 should bring it to below 20 percent the gross NPA.
Q: What will disbursements to top corporates mean in terms of how your assets or your net interest income (NII) will look in FY14? Could you tell us a little more about your net interest margins (NIMs) as that contracted last quarter?
A: NII had come down from 2.6 to around 1.7 in the Q1. My immediate aim is to push it up to above 2 and move to above 2.5, which I am confident I will be able to do it once these good corporates come in.
We normally cannot compete with the banks in long-term lending. IFCI is a non banking financial company (NBFC) and we need to raise resources. My liability profile does not allow me to compete with the banks on prices or on tenure.
So, we look at the niche areas of promoter funding or bridge financing and where some short-term finance is required plus some good real estate projects where interest rates can be slightly higher. I am also trying to reduce IFCI’s exposure to pure capital market loans.
Q: What is the current exposure to capital market loans? How much are you looking to reduce it by?
A: Pure capital market loan is quite high because out of Rs 14,000-15,000 crore, close to Rs 6,000 crore is on pure capital market, which is very high. I am trying it convert these loans into asset-based finance. By September, I should be able to bring it down to about Rs 3,500 to 4,000 crore immediately and next year further down.
Q: Any discussions with government on their plans to sell stake because they wanted to sell stake earlier than the year they took over in 2012. Any stake sale plans?
A: As far as I know, there are no such plans on that front. Government has taken back the equity and government is now the main owner of the company.
Q: What about bank license. Have you submitted any application and are you working towards that?
A: We have submitted the application of banking license. It’s up to the RBI. We hope we will get it. If we get it, then we will have to take lot of steps to put the structure in place. We are working on that. We will be ready.
IFCI stock price
On January 27, 2015, at 14:01 hrs IFCI was quoting at Rs 37.05, down Rs 0.8, or 2.11 percent. The 52-week high of the share was Rs 44.90 and the 52-week low was Rs 21.80.
The company's trailing 12-month (TTM) EPS was at Rs 3.50 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 10.59. The latest book value of the company is Rs 40.42 per share. At current value, the price-to-book value of the company is 0.92.
READ MORE ON banking, asset quality, non performing assets, NPAs, SB Nayar, loan sanction, corporates, balance sheets, net interest incomes, NII, exposure, capital market loans, IFCI
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