No taker yet for IL&FS Financial Services; high NPAs keep investors away

IL&FS Financial Services (IFIN), a subsidiary of beleaguered infrastructure financing company IL&FS put up for sale three weeks ago, has failed to find any taker as prospective investors are worried over its high bad debt and recent defaults. 

IFIN’s sagging financials and the Reserve Bank of India’s (RBI’s) recent diktat banning the financial services firm from accessing commercial paper market following a default have changed the mood among the prospective buyers. “No one is interested in catching a falling knife,” said a source close to the development.

“The NPAs and high exposure to group companies has made the company an unattractive target. We have to wait till the end of this fiscal year to get a clearer picture,” said an investor interested in acquiring a financial company in India. 

On September 14, IFIN defaulted for the second time on redemption of Rs 1.05 billion of commercial paper. It was unable to repay its investors in time due to insufficient funds in its CP redemption account. Earlier, IFIN had delayed redemptions of commercial paper in August-end on account of “technical issue”. As a result, the company was then barred from accessing CP markets till February 28 next year according to the RBI Commercial Paper directions, 2017.

An email sent to IL&FS seeking comments on IFIN did not elicit any response till going to press. 

Investors said the financials of IFIN for the financial year 2018 were not looking good as its gross (non-performing asset) NPA ratio was 5.3 per cent compared to 3.3 per cent in the previous fiscal year. Similarly, its net NPA ratio went up to 3.49 per cent compared to 2.36 per cent reported in March 31, 2017. 

Besides, IFIN also witnessed a marginal decline in total income during FY18, which was largely on account of stagnant growth in interest income on loan portfolio with net interest income increasing by only 9 per cent during the year compared to 32 per cent in the previous year. 

It also reported a sharp decline in its profit before tax of Rs 2.02 billion in the fiscal year 2018 as compared to that of Rs 3.23 billion in the previous fiscal year. The company reported a 52.2 per cent fall in its profit after tax of Rs 1 billion during FY18 as against PAT of Rs 2.09 billion in FY17. 
 

The RBI has asked IFIN to reduce debt exposure in all the IL&FS group entities by March 2019 in conformity with the RBI regulations on non-banking financial services. 

The RBI’s inspection of the IFIN for FY18 revealed that the NBFC’s exposure to IL&FS group entities have increased over the past few years. It also breached the regulator’s norms on capital adequacy ratio and group exposure limits as on March 2018. The RBI then asked the company to bring its exposure down within a year.