Ifci Faces Major Asset-Liability Mismatch Over Next Two Years
IFCI Ltd, currently under fire for being caught severely short of cash, professes a nominal asset-liability mismatch to the tune of Rs 129.6 crore for a one year period in its latest annual report for 2000-01.
The financial institution is currently unable to meet the redemption and interest payment obligations on Rs 220 crore worth of bonds on which it had chosen to exercise a call option.
According to IFCI's annual report for 2000-01, rupee assets for the time period of less than one year aggregated Rs 4,212.97 crore against a rupee liability of Rs 4,342.57 crore. That is, it needs to repay its liabilities for an amount more than what it recovers from the planned repayment of its assets.
The situation worsens for IFCI in the coming two years as its cash flow becomes even more negative. Against rupee assets of Rs 3,477.48 crore for the time period one year up to three years, liabilities stand to the tune of Rs 5,031.18 crore, reflecting a mismatch of Rs 1,553.7 crore.
In the next reported bracket of three to five years, IFCI reports liabilities exceeding assets by Rs 402.88 crore.
But after five years, IFCI has a positive cash flow as rupee assets stand at Rs 3,877.59 crore against rupee liabilities of Rs 1,512.71 crore. That is, it will recover more money than it needs to pay off its liabilities. Indeed, it will get a windfall of Rs 2,364.88 crore. In the next time period reported as seven years-plus, however, longer term assets maturity exceed rupee liabilities by only Rs 5.49 crore.
Similarly, IFCI faces a major asset-liability mismatch in the case of foreign currency as assets for a period of less than one year stand at Rs 727.53 crore against liabilities of Rs 1,207.24 crore, a mismatch of Rs 479.7 crore. In the period of one year to three years, the mismatch enlarges even further in the case of foreign currency assets and liabilities to the tune of Rs 531.96 crore, and only becomes positive in the period of three years to five years at Rs 415.23 crore.
This explains IFCI's strategy with regard to foreign currency loans wherein it says that 75 per cent of future loans will be given only to existing and established export-oriented units having appropriate hedging mechanisms for mitigating the foreign currency risks.
In response to the huge mismatch on the rupee front, IFCI has decided that over the next five years, 50 per cent of the sanctions will be for short-term products, till the share of project finance comes down to around 50 per cent.