It is indeed my privilege to welcome you to the 25th Annual General Meeting of Your Company, IFCI Ltd. on behalf of the Board of Directors of Your Company, I thank you all for your continued trust and support, extended to IFCI over the years.
At the outset, I would like to briefly outline the developments in the International & Indian economies and also in the Banking & Finance sector during the financial year 2017-18, before touching the performance highlights of Your Company.
MACRO-ECONOMIC SCENARIO - DEVELOPMENTS & OUTLOOK
The world economy grew at a faster pace in 2017 at 3.8% as compared to 3.2% growth registered in 2016, supported by a recovery in investment in second half of 2017. Financial conditions also remained supportive, despite the recent volatility in equity markets and increase in bond yields following signs of firming inflation in advanced economies.
The International Monetary Fund (IMF) projects global economic growth to be robust during 2018. Growth is expected to be broad-based with the advanced economies (AEs) growing above their potential and emerging markets and developing economies (EMDEs) also posting higher growth, though, the latest indicators such as Purchasing Managers’ Index (PMI) and organisation for Economic Cooperation and Development (oECD) Composite leading indicators suggest some moderation in the underlying drivers of economic growth. Further, spillover risk from advanced financial markets to emerging markets has increased. Tightening of liquidity conditions in the developed markets and a strong US dollar have started to adversely impact emerging market currencies, bonds and capital flows. Firming commodity prices, evolving geopolitical developments and rising protectionist sentiments pose added risks. on balance, however, the global economic growth outlook remains positive.
In India, growth slowed for the first 2 quarters of FY 2017-18, partly reflecting adjustments by businesses to GST. In the second quarter of FY 2017-18, the slowdown in economic activity bottomed out at 6.3% growth. With gradual stabilization of GST impact, in Q3 of FY 2017-18, GDP grew at 7% and it further accelerated to 7.7% in Q4 of FY 2017-18, resulting in a healthy growth rate of 6.7% for FY 2017-18. Domestic demand continued to drive growth, with strong private consumption and a public infrastructure spending push in India. Moreover, the growth in non-food credit was also observed after nearly 2 years, especially, the growth in industry being observed from December 2017 onwards.
Prospectively, India’s growth outlook appears promising, with household consumption expected to remain strong, exports expected to recover, and investment projected to revive with the support of structural reforms. Continuing thrust on green and brownfield projects in the infrastructure sector is likely to aid economic activities and support higher growth. A normal monsoon is projected for FY 2018-19 which would auger well for agriculture and allied sectors and would help in generating stable rural demand. Due to improvement in capacity utilization in manufacturing sector owing to pick up in demand, both credit off take and investments are expected to improve in FY 2018-19. Overall with the high level of digital technology usage, a balanced and inclusive growth is expected in the near term.
The Scheduled Commercial Banks’ (SCB) credit growth picked up on a year on-year basis across bank groups between September 2017 and March 2018, though, deposit growth decelerated for PSBs during the same period. Their Capital to Risk-Weighted Assets Ratio (CRAR) declined marginally between September 2017 and March 2018. SCBs’ profit after tax plummeted in the second half of the year, mainly due to higher risk provisions on bad & doubtful assets. The share of net interest income (NII) in total operating income increased from 63.7% in 2016-17 to 65.2% in 2017- 18 primarily due to decline in other operating income. A major component of other operating income, the profit on trading of securities, showed significant decline in 2017-18. The Asset quality of the Scheduled Commercial Banks witnessed further deterioration during the FY 2017-18. The gross non-performing advances (GNPA) ratio rose from 10.2% in September 2017 to 11.6% in March 2018. However, their net nonperforming advances (NNPA) ratio registered only a smaller increase during that period due to increase in provisioning. The GNPA ratio in the industry sector rose from 19.4% to 22.8% during the same period, whereas, stressed advances ratio increased from 23.9% to 24.8%.
Non-Banking Financial Companies (NBFCs) have been consistently increasing their share of lending in the Indian financial sector. While the Banks were the main source of funding, off-late they being saddled with their own issues such as high NPAs in the large ticket corporate and infrastructure lending, the retail oriented and stronger NBFCs have looked more at bond market avenues. The NBFCs have been growing at a faster pace on account of their customised offerings, better market understanding and doorstep reach to the customers. While, the NBFCs with retail focus continued to report appreciable growth in business and profit, the pure corporate lending NBFCs had to bear the brunt of NPAs and report loss or lower profit for the year 2017-18. In 2017, NBFCs increased their share in the total credit market to 16%, from 13% in 2015. GNPAs of the NBFC sector as a percentage of total advances decreased from 6.1% in 2016-17 to 5.8% in 2017-18. The CRAR of NBFC sector increased from 22.0% in
2016-17 to 22.9% in 2017-18.
OPERATIONAL AND FINANCIAL PERFORMANCE
As a consequence to subdued sentiments in the economic environment and increase in NPAs mainly in the infrastructure and core sectors, the performance of Your Company was affected in tandem with the overall financial sector. Though, the economy and credit growth started showing signs of recovery in the later part of FY 2017-18, its effect is expected to be visible in FY 2018-19.
Under such scenario, Your Company focused on improvement in asset quality and made gross sanctions to the tune of Rs,7,148 crore in good quality assets vis-a-vis gross sanctions of Rs,7,923 crore in FY 2016-17 and made disbursements of Rs,4,434 crore in FY 2017-18, thereby registering a growth of 45.2% over the disbursements of Rs,3,053 crore made in FY 2016-17. With strong focus on the recovery front, through various available measures of action, Your Company could recover Rs,963 crore during the year, including recovery of Rs,854 crore from NPAs during FY 2017-18. Further, resolution of certain large NPAs is expected through NCLT forum.
Withdrawal of all the existing restructuring mechanisms including CDR, SDR, S4A, JLF and 5/25 loan scheme by RBI vide its circular issued on February 12, 2018 and the price discovery during the process of resolution of large legacy corporate borrowers under NCLT within the IBC framework had huge impact on increased provisioning in the entire financial sector including Your Company. As a result, Your Company suffered a net loss of Rs,1,009 crore during the year under report. Consequently, the capital adequacy ratio declined to 14.02% with Tier-I capital at 7.52% due to partial erosion of capital on account of loss due to high provisions . However, as per the revised guidelines of RBI, the requirement of CRAR is 10% for Government NBFCs with minimum Tier I Capital being 7%, as on March 31, 2019.
Despite difficult times and ecosystem, Your Company progressively made certain positive assertions by way of policy initiatives and performance characterisations, some of which I would like to bring to your notice.
V The operational profit for FY 2018 was higher at Rs,5 70 crore than Rs,413 crore in FY 2017.
V Aggregate NNPAs and Standard Restructured Assets declined to Rs,5,428 crore on March 31, 2018 from Rs,7,104 crore at the end of previous year.
V The Provision Coverage Ratio was enhanced from 42% to 55% during the year.
V Debt Equity Ratio could be maintained at a reasonable level of 4.18.
V Disbursement to Sanction Ratio increased from 38% in FY 2017 to 61% in FY 2018.
V Credit rating of loan portfolio improved to ‘A-“ at end of FY 2018 from “BBB-“ at the beginning of the year.
Insolvency and Bankruptcy process is underway in many large NPAs, which are expected to be resolved during FY 2018-19, this, along with divestment of non-core assets is expected to improve the asset quality as well as cash flow of Your Company and also strengthening the balance sheet of Your Company. During the year, the risk management and credit appraisal & monitoring systems and processes have been made stringent with detailed analysis for evaluation of portfolio and timely corrective actions, as and when required.
ADHERENCE TO THE CORPORATE GOVERNANCE
The Report on Corporate Governance for the FY 2017-18 forms separate part of the Annual Report. During the Year under report, Your Company has made all out efforts for compliance of the conditions of Corporate Governance as stipulated in the Guidelines on Corporate Governance for Central Public Sector Enterprises 2010, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Non-Banking Financial Companies - Corporate Governance (Reserve Bank) Directions, 2015. However, the Board constitution w.r.t. Independent Directors could not be met, due to the fact that application for appointment of Independent Directors is pending with the Government of India.
Being the first term lending institution of the nation with huge contribution to the industrial and economic development of the country, it is our foremost objective to bring Your Company back to its past glory through a slurry of measures. These include short term actions like aggressive NPA recovery through all avenues and strategies, unlocking strategic and proprietary investments, monetisation of non-core assets, renewed focus on Advisory and Fee-based income to medium term measures like decisive plans on subsidiaries and associates and Human Resource competency development through appropriate trainings and capacity building.
With all the efforts being made by Your Company to further strengthen its operational, financial and human resources performance, I hope that it will overcome the challenges & emerge triumphant once again in the very near future.
I take this opportunity to thank the Government of India, especially The Ministry of Finance, The Ministry of Corporate Affairs, The Reserve Bank of India, The Securities & Exchange Board of India and all stakeholders including Banks and Financial Institutions, for the continued support and guidance provided to Your Company. Your Company expresses its gratitude for the professional advice and vision of the Board of Directors. I place on record my sincere thanks to all our esteemed shareholders, clients and investors for their unstinted support to the Company. I also wish to place on record my deep appreciation of the dedicated service of all the employees at all levels of Your Company.
Dr Emandi sankara Rao
Managing Director & CEo
Date : 02.07.2018 DIN: 05184747