IFCI faces asset growth restrictions due to NPA woes

IFCI has reported its fourth quarter numbers, ending March 31, 2012. The company posted a net profit of Rs 219 crore down marginally by 6%.

In an interview to CNBC-TV18, Atul Kumar Rai, CEO and managing director of IFCI says the environment has been sluggish and acknowledges that the company’s profitability has slipped a little. Just like many in the industry, NPAs have been a concern which has held up asset growth.
“We had to kind of decelerate in terms of fresh assets but I would say looking at the environment, I accept these results,” says Rai, adding, this is exactly what his balance sheet is capable of doing at this point of time and anything further if attempted would have only been at the cost of higher risk. Below is an edited transcript of his interview. Watch the accompanying video for more. Q: Your profits are down in Q4. Even for FY12 which turned out to be a sluggish year for profitability, would you say that this has not been an exceptional year for you?
A: Yes, it has certainly not been an exceptional year for us as I believe it has not been for the rest of the economy. There has been sluggishness and we have had to do all the running we can to stay where we were and we have slipped a bit in terms of profitability. Part of it has been deliberate because looking at the climate, it was not thought prudent to maintain the same kind of asset growth which was, if you recall, very vigorous over the last two years.
So we had to kind of decelerate in terms of fresh assets and that of course has impacted the profitability. I would say that looking at the environment, I accept these results. This is exactly what our balance sheet is capable of doing at this point of time and anything further if attempted would have only been at the cost of higher risk. Q: At what kind of rate given the current quarter’s numbers are your disbursements growing at right now?
A: We have doubled our balance sheet over the last three years or so. It used to be a growth of about 40% YoY. This year our sanctions have only grown by 37% and our disbursements have grown a little bit higher than that because disbursements also happened in the cases which have been sanctioned earlier, which have been growing at about 60% but on a net basis, it is much lower. The balance sheet size is a better indicator, which has grown by about 10% over the last one year. Q: Your non-performing assets (NPAs) have come down but they are still quite high. What kind of targets do you have to bring it down to single digits? Are you making much progress there?
A: We started four years ago with the gross NPAs at more than 70% of our balance sheet. So we look at it also entirely from that perspective that we have brought it down from 70% to 13%. Of course, the going becomes much harder as you resolve these legacy NPAs because the underlying assets have either depreciated in value or do not exist. So that is the constraint. One way can be to write-off more strongly at a higher level but that again depends upon our ability to be able to foresee what we can recover. Q: What about capital raising? Do you need to raise capital in FY13 to spur growth on?
A: Since we have pulled back our lending a bit, capital adequacy has gone up from 16.4% last year to about 21.4%. The norm in case of non-banking financial companies (NBFCs) like us is at 15%. So I would imagine that 21% is quite healthy perhaps more than healthy. We should be looking at trying to step up our assets so that we are at a more efficient level of utilization of capital than at present. Q: A few weeks back, after many months, talks had resurfaced of some getting a strategic partner, looking at a blue-print for IFCI, has any progress happened since then or was it just a flash in the pan?
A: This was a news item, which I did manage to see. Of course, at the board level and at the company level, there is no knowledge of such a proposal. I don’t know whether it fits in, there was a context in which it was looked at as the only viable option for a company, which was otherwise fit for winding up and that was way back in 2007.
Since then, we have managed to stabilize operations, we have grown, we have doubled the balance sheet size capital adequacy, which was minus 300% is 21% today. So all these things do raise a question about whether such a step is desirable or it adds any value to the company.
On the other hand, the company is a listed entity as it was then and should an investor have interest in IFCI, there is nothing stopping anyone from taking a financial or a strategic stake in IFCI. Q: What is the latest on the court case; a division bench on the High Court had set aside the earlier order against you, is that the final word or is there still litigation on?
A: I hope it is a final word as far as I understand the contempt law. This should be the final word and I am happy to be a free man. So I don’t think that there is any complication, which can be anticipated on this front.