IFCI infuses capital into factoring arm

Government-owned financial institution IFCI has infused capital into subsidiary IFCI Factors, as its capital adequacy ratio (CAR) had fallen below the regulatory norm of at least 15 per cent, owing to rising losses.

IFCI Factors' CAR fell from 20.95 per cent at the end of March 2014 to 12.25 per cent in December.

A senior IFCI executive said in March, the company had converted a loan given to its subsidiary into preference shares to ensure the subsidiary, in which IFCI holds 99 per cent stake, met capital adequacy norms by the end of 2014-15.

These preference shares were treated as part of tier-I capital, the official said He, however, did not specify the sum converted into shares.

Rating agency Brickwork Ratings has revised its rating for IFCI Factors' outstanding debentures/bonds from 'A' to 'A-'. The revision takes into account the decline in the company's financial performance, substantial deterioration in its asset quality and weak capitalisation. It also reflected inherent risks associated with the factoring business, essentially unsecured in nature, Brickwork Ratings said in a statement.

The rating agency also said as the company was a subsidiary of IFCI, it would be supported by the parent in terms of capital and management. The company's liquidity profile was comfortable, with no asset liability mismatches in the short-to-medium term, Brickwork said.

IFCI Factors' operating income fell to Rs 133.73 crore in 2013-14 from Rs 176.48 crore in 2012-13. It reported a loss of Rs 35.54 crore for 2013-14, against a net profit of Rs 19.23 crore in 2012-13. On a provisional basis, the company reported an operating income of Rs 80.06 crore and a loss of Rs 44.71 crore for nine months ended December 2014.

Asset quality declined substantially, with gross non-performing assets rising from 4.23 per cent in FY13 to 26.82 per cent in FY14. Most delinquencies were in the infrastructure and power sectors.

The company's portfolio outstanding fell fromRs 1,168 crore in March 2013 to Rs 886 crore in March 2014 and Rs 804 crore December 2014.