FOR FINANCIAL YEAR 2016-17
I welcome you to the 24th Annual General Meeting of IFCI Ltd. I thank youfor your esteemed presence continued trust and unwavering support extended to IFCI allthese years.
Before coming to IFCI's performance I would like to dwell on the developments in theIndian economy and the finance sector during the financial year 2016-17.
MACRO-ECONOMIC SCENARIO & DEVELOPMENTS
The year 2016-17 witnessed some major surprises globally which included Brexit resultsof the US elections and Demonetization in the largest democracy of the world. Though theIndian economy showed signs of improved industrial climatic conditions in the coming yearson the back of some major reform initiatives like Goods & Services Tax (GST) thegrowth in India's GAP declined to 7.1% year-on-year in FY 2017 from 8.0% in the previousyear. The global economic growth also slowed down to 3.1% during calendar year 2016 withboth the advanced and emerging economics contributing to the decline.
The fiscal year 2017 also saw some major policy initiatives apart from GST andDemonetization. These included enactment of the Insolvency and Bankruptcy Code 2016 forspeedier resolution or liquidation of stressed assets merger of Railway Budget with theUnion Budget removal of expenditure categorization into plan and non-plan constitutionof six member Monetary Policy Committee with responsibility of monetary policy decisionmaking and liberalization of foreign investment policies.
Scheduled Commercial Banks' (SCBs') credit growth declined on year- on-year basiswhereas deposit growth increased between September 2016 and March 2017.
SCBs' annual profit after tax (PAT) expanded by 48.0% in 2016-17 as against a declineof 61.6% in 2015-16 mainly due to higher increase in Other Operating Income (OOI) andlower risk provisions. However public sector banks (PSBs) once again recorded negativereturns on their assets.
Though India's financial system remained relatively stable during the FY 2016-17 thebusiness growth of SCBs remained subdued with PSBs continuing to lag behind their privatesector peers. The stress on banking sector particularly the PSBs remained significant.The Banking Stability Indicator (BSI) shows that the risks to the banking sector remainedelevated due to continuous deterioration in asset quality low profitability andliquidity. The gross non-performing advances (GNPA) ratio of SCBs increased to 9.2% from7.8% during the period between March and September 2016 pushing the overall stressedadvances ratio to 12.3% from 11.5% in the same period.
As per the Financial Stability Report by The Reserve Bank of India as of March 2017there were 11517 non-banking financial companies (NBFCs) registered with the Reserve Bankof India of which 179 were deposit accepting (NBFCs-D). There were 220 SystemicallyImportant Non-Deposit accepting NBFCs (NBFCs-ND-SI). All NBFCs-D and NBFCs-ND-SI aresubjected to prudential regulations such as capital adequacy requirements and provisioningnorms along with reporting requirements.
The aggregate balance sheet size of the NBFC sector expanded by 14.5% during 2016-17 ascompared to 15.5% during 2015-16. Loans and advances increased by 16.4% and investmentsincreased by 11.9% in March 2017. In terms of borrowings commercial paper outstandingrose by 70.3% and debentures outstanding increased by 28.3% as on March 31 2017 whilebank borrowings declined by 3.7%. Net profit was down by 2.9% during 2016-17. Net profitas a percentage of total income also came down from 18.3% in 2015-16 to 14.0% in 2016-17.Return on Assets and Return on Equity also declined during the same period.
The NBFCs catering only to corporate sector were badly affected due to increase in NPAsand slowdown in credit offtake whereas NBFCs financing only retail loans or mix ofcorporate and retail loans showed growth in their performance.
OPERATIONAL AND FINANCIAL PERFORMANCE OF IFCI
After a period of ten years of consistency in profit generation your Company suffereda loss of Rs.458 crore during FY 2017 which was the compounding result of decline inoperational income by 28.25% to Rs.2740 crore from Rs.3819 crore for the previous yearand increase in provisions against loans & investments to Rs.1192 crore from Rs.895crore in FY 2016.
The major reason for fall in operational income was increase in fresh NPAs leading toreversal/non-recognition of interest income and low disbursement coupled with prepayments.The increase in provisions was primarily due to above reasons and reduction of defaultdays from 150 to 120 days for classification as NPAs. Failure of sum of the SDR and S4Acases for implementation in terms of RBI Guidelines also added to the NPAs reversal ofincome and provisioning.
The finance cost also reduced from Rs.2517 crore to Rs.2289 crore through reducedborrowings at lower cost and prepayments of certain high cost borrowings. Still the impactof large decline in interest income resulted in lower Net Interest Income of Rs.211 croreas against Rs.927 crore in previous year. Consequently the NIM also declined from 3.24%in FY 2016 to 0.80% in FY 2017.
Due to the impact of low credit offtake and prepayments of loans the balance sheetshrunk from Rs.36900 crore to Rs.31674 crore during the fiscal 2017. The Networth ofyour Company also declined to Rs.5683 crore from Rs.6129 crore a year back.
However the Capital Adequacy Ratio was maintained at 16.7% on March 31 2017 againstregulatory requirement of minimum 15% with the Tier I capital being 11.2% as againstregulatory norm of 10% to be achieved by March 31 2018. The debt to equity ratio was4.03 improved from 4.54 at the beginning of the year and the leverage ratio was 5.31below the regulatory cap of 7 times.
The cost of borrowings also reduced from 9.4% for FY 2016 to 9.3% for FY 2017. Theproportion of employee cost however increased from 2.5% in the previous year to 3.3% inFY 2017 despite decline in absolute amount due to larger decline in income.
In view of the loss and in order to preserve capital and cash for future growth yourCompany skipped declaration of any dividend on equity shares after consistent dividendpayment for 8 years.
Your Company reduced its lending benchmark rate IFCI Benchmark Rate (IBR) from 11.70%at the beginning of the year to 10.75% by March 2017. The Short Term IBR introduced inApril 30 2016 at 9.40% was also reduced to 8.35% by the end of FY 2017.
RECENT DEVELOPMENTS NEW BUSINESS INITIATIVE AND PROSPECTS
Your Company took some major initiatives during FY 2016-17 with primary objective ofgrowth in business cost cutting and employee empowerment and satisfaction. organizationalrestructuring was one such major initiative. With a view to optimizing the cost andmaximum utilization of existing resource pool your Company decided to merge the Guwahatioffice with Kolkata Regional office and to close seven small offices at PatnaBhubaneswar Lucknow Kochi Vijayawada Raipur and Bhopal. Though some of these officeswere newly opened in the past two to three years they could not achieve the businessgrowth potential as envisaged at the time of opening due to various factors.
Also the functions of Credit Departments were restructured with focus on improvementin appraisal standard with separate groups for infrastructure and non-infrastructureappraisal. Some lateral recruitments were made by bringing professionals with requisiteexperience to strengthen operational processes especially in appraisal monitoring riskmanagement and internal audit.
Apart from the above the employees' grievances were quickly addressed in order toboost their morale and improve productivity.
Further Information & Technology being the backbone of financial process and datainfrastructure major upgradations in business applications were carried out and variousnew applications were implemented during the year.
Your Company has been a great supporter of digitization drive. It ensured that theentire receipt and payment transactions were undertaken through digital modes likeRTGS/NEFT/NECS. Your Company also discourages and avoids cash transactions.
With the steps taken by the Government in major reforms like GST relaxation in FDI andprediction of good monsoon in the current year there is hope for capex and credit offtakepicking up in the second half of the year which would provide the required boost to thefinancial sector including your Company. The introduction of Insolvency and BankruptcyCode has generated optimism in quick resolution/redressal of stressed assets. Your Companyhas set up a strong recovery mechanism for fast recovery from the NPAs through a dedicatedteam with expertise.
Apart from emphasis from recovery from NPAs your Company has also taken other majorsteps like reduction in single borrower and group exposure to below RBI prescribed levelsto avoid concentration risks reduction in its lending benchmark rate to improve portfolioquality.
ADHERENCE TO THE CORPORATE GOVERNANCE
The Report on Corporate Governance for the Financial Year 201617 forms separate part ofthe Annual Report. During the year under report your Company has made all out efforts forcompliance of the conditions of Corporate Governance as stipulated in the Guidelines onCorporate Governance for Central Public Sector Enterprises 2010 SEBI (Listing Obligationsand Disclosure Requirements) Regulation 2015 and Non-Banking FinancialCompanies-Corporate Governance (Reserve Bank) Directions 2015.
CONCLUDING REMARKS & ACKNOWLEDGEMENT
With all the efforts being made by your Company to further strengthen its operationalfinancial 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 ofFinance The Ministry of Corporate Affairs The Reserve Bank of India The Securities& Exchange Board of India and all stakeholders including Banks and FinancialInstitutions for the continued support and guidance provided to your Company. YourCompany expresses its gratitude for the professional advice and vision of the Board ofDirectors. I place on record my sincere thanks to all our esteemed shareholders clientsand investors for their unstinted support to the Company. I also wish to place on recordmy deep appreciation of the dedicated service of all the employees at all levels of yourCompany.
|Thank you. || |
| ||Sanjeev Kaushik |
| ||Chairman |
|Date : June 29 2017 ||DIN: 02842527 |