IFCI net NPAs at 2%; sees sluggish business conditions

Atul Kumar Rai, chief executive officer and managing director of IFCI told CNBC that its business has been going through a sluggish phase. "We were growing at a compound annual growth rate (CAGR) of 40% over the last three years, but it just wasn't sustainable owing interest rate regime and lack of investment activity," he elaborated.

IFCI reported a sales turnover of Rs 660.84 crore and a net profit of Rs 93.61 crore for the quarter ended June 2012. For the quarter ended Jun 2011 the sales turnover was Rs 602.57 crore and net profit was Rs 132.06 crore. He further informed that the company’s non performing assets (NPAs) stood at 2% and were flat on a sequential basis. Below is the edited transcript of Rai’s interview with CNBC-TV18. Q: Ten percent total income growth, is business sluggish now? A: Yes, business is sluggish. It has been very sluggish for the last year-and-a-half. Being non banking financial companies (NBFC) we had to take a call to slowdown our asset expansion. We were growing very fast, almost at a compound annual growth rate (CAGR) of 40% over the last three years, but it just wasn’t sustainable owing interest rate regime and lack of investment activity. Q: Any stress on the asset quality that you are beginning to experience? A: Right now in terms of number our net NPAs in percentage terms of the net advances remain at around 2%, which is same as last year. On the other hand, when we look at the repayment record we look at the reference to the CDR etc. There is certainly an issue when the investment demand slows down in the economy, much of what we do depends on that investment demand. Therefore companies have issues in being able to meet their projected cash flows. So, I would expect that we would also be facing these demands for restructuring or rephrasing of the repayment terms. Q: Are you already beginning to see some requests and from which kind of sectors typically? A: Much of our exposure is in industries and infrastructure. We have experienced it already in power because there is an issue on the fuel and revenue side owing to the state electricity boards.  I do not think that we have found a solution either to coal or to gas as yet. Projects are ready, but they are not being able to commence their operations. These cases have approached us for restructuring of terms. Q: What is the situation with Deccan Chronicle, one of your troubled clients? You had asked for winding up petition with Deccan Chronicles some weeks back? A: On June 26 we had some non-convertible debentures (NCDs), which was supposed to mature, the repayment did not happen. Then we were promised that it will be only a matter of days, but that too did not materialize. We had no option being unsecured kind of creditors in that company. We had no option but to move the High Court for winding up and for other kind of measures under Negotiable Instrument Act. We had to do it much against our wishes, but it appears that the difficulties that we were facing is now being faced by many more lenders who have their money stuck in this company and do not know how to get it out. Q: You also wanted to write-off more than Rs 500 crore of dues of Hindustan Cables but the government does not seem to keen to allow you to do that, any resolution on that front? A: No, that matter has been deferred by the board. There is something which is being addressed by the government to all our directors. Those issues could not have being considered by us owing to lack of time. So, we have deferred this matter in the board meeting held on Friday. Q: Any other such large accounts which are propping up which look like they could cause you some distress going forward in the next two quarters? A: In general I can say that the entire portfolio is going to face some difficulty because being NBFC we end up lending to not the best clients, that has to be the case because our cost of funds is higher and so therefore the risk profile would be certainly much more precarious to deviations in projected cash flows as compared with banks. In this quarter we had only one account which is very old account which has been classified as NPA. It is in tourism sector, but otherwise in general if things continue as they are now, we would have to face situation where some cases slippage into non-performing category cannot be ruled out.