I welcome you to the 26th Annual General Meeting of IFCI Ltd. I thank youfor your continued trust and unwavering support extended to IFCI all these years.
Before coming to IFCI's performance I would like to dwell on the developments in theIndian economy and the Banking & Finance sector during the financial year 2018-19.
MACRO-ECONOMIC SCENARIO & DEVELOPMENTS
The world economy grew at a decelerated rate in 2018 at 3.6% as compared to 3.8% growthregistered in 2017. The economic activity slowed down in 2018 on account of the escalationof USChina trade tensions macroeconomic stress in Argentina and Turkey disruptionsto the auto sector in Germany tighter credit policies in China and financial tighteningalongside the normalization of monetary policy in the larger advanced economies. All thesefactors have contributed to a significantly weakened global expansion especially in thesecond half of 2018 after experiencing strong growth in 2017 and early 2018 therebyreflecting financial consolidation and slow-down in manufacturing due to trade tensionsbetween major economies. The Indian economy consecutively for the 2nd yearwas able to retain its place of the fastest growing major economy in the world in FY2018-19 as well as it continued its climb on an upward growth path however it grew at aslower pace in 2018-19 at 6.8% vis--vis 7.2% growth registered in 2017-18. The IndianEconomy slow down on account of slowest growth rate observed in Q4 of FY 2018-19 at 5.8%.The International Monetary Fund (IMF) in its latest World Economic Outlook of April 2019issue has pegged a higher growth for Indian Economy at 7.3% and 7.5% for FY 2018-19 and FY2019-20 respectively where the World Economy is expected to grow at 3.3% in both theyears 2019 & 2020.
Investment has continued to grow robustly supported by large public sector projects.In contrast private investment in particular manufacturing has been affected byuncertainty ahead of the parliamentary elections combined with persistent challenges infinancing projects acquiring land and getting all the necessary clearances. Ruralconsumption two-wheeler and tractor sales have slowed driven by subdued agriculturalprices and wages. However the consumer durables market is expected to pick up supportedby rising disposable incomes greater electrification and FDI investments. The FMCG sectorcontinues to perform well and is expected to grow further fuelled by rising consumptionand investment patterns. Retail business which had suffered setback in FY 2018-19 isexpected to grow in FY 2019-20 especially with the boost provided by RBI by reducing therisk weightage on retail loans.
GLOBAL DEVELOPMENTS & OUTLOOK
The global economic activity slowed down considerably in second half of 2018 afterexperiencing strong growth in 2017 and early 2018 thereby reflecting financialconsolidation and slow-down in manufacturing due to trade tensions between majoreconomies. The weakening of consumer and business confidence led to loss of momentum inEuro area. Similarly the new emission standards led to disruptions in car production inGermany. Likewise investments dropped in Italy as sovereign spreads widened; and externaldemand especially from emerging Asia softened. Trade tensions increasingly took a tollon business confidence and so financial market sentiment worsened with financialconditions tightening for vulnerable emerging markets in the spring of 2018 and then inadvanced economies later in the year weighing on global demand. The global economy isexpected to grow at a decelerated rate by 3.2% in 2019 in comparison with 3.6% growthregistered in 2018 due to slower growth projected for the advanced economies at 1.8% in2019 in comparison with 2.2% growth of 2018. Growth across emerging market and developingeconomies is projected to stabilize slightly at 4.4% and 4.8% in 2019 and 2020respectively. The baseline outlook for emerging Asia remains favourable with IndianEconomy's growth projected at 7.0% and 7.2% in 2019 and 2020 respectively.
The Borrowing costs for emerging market and developing economies (EMDEs) haveincreased. Further the strengthening of USD heightened financial market volatility andrising risk premiums have intensified capital outflow and currency pressures in some largeEMDEs with some vulnerable countries experiencing significant financial stress. Energyprices have fluctuated markedly mainly due to supply factors with sharp falls toward theend of 2018. Other commodity prices-particularly metals-have also weakened posing renewedheadwinds for commodity exporters.
DOMESTIC DEVELOPMENTS & OUTLOOK
The Indian economy consecutively for the 2nd year was able to retain itsplace of the fastest growing major economy in the world in FY 2018-19 as well. As peradvance estimates released by the Central Statistical Office (CSO) the Indian economy isexpected to grow at 7% in FY 2018-19. However this growth is slower than growth of 7.2%registered in FY 2017-18. The International Monetary Fund (IMF) in its latest WorldEconomic Outlook of April 2019 issue has pegged a higher growth for Indian Economy at7.3% and 7.5% for FY 2018-19 and FY 2019-20 respectively. The estimates are on the backof continued recovery of investment and robust consumption amid a more accommodativestance of monetary policy and some expected impetus from fiscal policy. As per the WorldEconomic Organisation report efforts to enhance land reforms in order to facilitate andexpedite infrastructure development are expected to lead to overall growth of the economy.However downside risk which could impair India's Growth trend on account of slowdown inglobal demand on account of fiscal consolidation and uncertainty arising out of globaltrade tensions and the weak economic outlook in industrial countries.
The Indian Economy grew at a decelerated rate at 6.8% in FY 2018-19 as compared to 7.2%growth registered in previous FY owing to the slowdown registered in Q4 as the economygrew by only 5.8% as compared to 6.6% growth registered in previous quarter and 8.0%growth registered in Q1 of FY 2018-19. During the FY 2018-19 the banking sector appearsto be on course to recovery after a prolonged period of stress as the load of impairedassets recedes; Credit growth of Scheduled Commercial Banks (SCBs) improved as it grew by13.2% (yoy) in March 2019 vis--vis 10.4% growth registered in March 2018. This growthis largely driven by 21.0% growth registered by Private Sector Banks (PVBs) in March2019. The credit and deposit growth rate of Public Sector Banks (PSBs) also registered agrowth during the period March 2018 to March 2019 from 6.3% to 9.6% and 3.3% to 6.5%respectively on yoy basis. The asset quality of banks showed an improvement althoughprofitability continued to erode.
The Gross Non-Performing Assets (GNPA) ratio of SCBs registered a decline from 11.5% inMarch 2018 to 9.3% in March 2019 which is further expected to decline to a level of9.0% by March 2020 whereas in case of PSBs the GNPAs are expected to come down from12.6% in March 2019 to 12.0% in March 2020.
Provision coverage ratio (PCR) of all SCBs rose sharply to 60.6% in March 2019vis--vis 48.3% in March 2018 increasing the resilience of the banking sectorindicating improvements for both the PSBs and the PVBs. The decline in gross NPA ratiosince September 2015 and improved Provision Coverage Ratio (PCR) were the positivesignals. Stress test results also suggest further improvement in NPA ratio though thecurrent level remains high for comfort.
The Capital to Risk-Weighted Assets Ratio (CRAR) of SCBs improved marginally afterrecapitalization of PSBs from 13.8% in March 2018 to 14.3% in March 2019. CRAR of PSBsalso improved and touched level of 12.2% in March 2019 vis--vis 11.7% in March 2018.There was a marginal decline in Tier I leverage ratio of the SCBs between March 2019 andMarch 2018.
Non-Banking Financial Companies (NBFCs) have consistently been increasing their shareof lending to the Indian financial sector. However in line with the general trend inbanking & financial services industry a deterioration in asset quality of NBFC sectorhas been witnessed in the past one year. As on March 2019 there were 9659 NBFCsregistered with the Reserve Bank of India of which 88 were deposit accepting (NBFCs-D)and 263 were systemically important non-deposit accepting NBFCs (NBFCs ND-SI). All NBFCs-Dand NBFCs-ND-SI are subjected to prudential regulations such as capital adequacyrequirements and provisioning norms along with periodic reporting requirements. Theconsolidated balance sheet size of the NBFC sector (including NBFC-D and NBFC-ND-SIincluding Government NBFCs) registered a 20.6% (YoY) growth and stood at Rs.28.8 trillionas on March 2019 vis--vis 17.9% growth at Rs.24.5 trillion as on March 2018. There wasa 6.3% (YoY) increase in share capital of NBFCs in March 2019. The borrowings registereda growth of 19.6% (YoY) in March 2019 which was same a year back. Loans and advances grewat a decelerated rate at 18.6% (YoY) in March 2019 as compared to by 21.1% (YoY) andinvestments increased nearly by two times at 24.4% (YoY) in March 2019 as against thegrowth rate of 12.9% (YoY) respectively in March 2018. Net profit of NBFC sectorregistered a decelerated growth as it expanded by 15.3% (annualised) during FY 2018-19vis--vis 27.5% growth during FY 2017-18. Return on Assets (RoA) for the FY 2018-19remained static at 1.7% (annualised). Leverage ratio improved marginally to 3.4% as onMarch 31 2019 from 3.2% as on March 31 2018.
Stressed assets of NBFC sector have increased during the period March 2018 March 2019 since Gross NPAs of the NBFC sector as a percentage of total advancesincreased to 6.6% as on March 31 2019 from 5.8% as on March 31 2018. However the netNPA ratio declined marginally from 3.8% as on March 2018 to 3.7% as on March 31 2019.Further as per extant guidelines NBFCs (other than Government NBFCs) are required tomaintain a minimum capital level consisting of Tier-I and Tier-II capital of not lessthan 15% of their aggregate risk-weighted assets. NBFCs' CRAR decreased to 19.3% in March2019 from 22.8% in March 2018. From April 1 2018 onwards NBFC-ND-SIs and all deposittaking NBFCs are required to maintain 10% of Tier I capital.
OPERATIONAL AND FINANCIAL PERFORMANCE OF IFCI
As the overall economic environment and especially the credit offtake was subduedduring FY 2018-19 IFCI's performance was also affected in line with the overall financialsector. Despite decline in operational income and fair value loss Your Company could earnprofit of Rs.393 crore before impairment on financial instruments though suffered a totalcomprehensive loss of Rs.483.18 crore during the year under report mainly on account oflarge amount of impairment made in respect of Stage-3 assets especially the casesadmitted in National Company Law Tribunal (NCLT). The substantial amount of provisionsenhanced the provision coverage ratio to over 60% however the capital adequacy ratiodeclined to 7.97% with Tier-I capital at 5.31%. Various strategic initiatives includingmeasures for recovery were initiated during the year in order to maximize recovery underInsolvency and Bankruptcy Code (IBC) route and other modes expedite divestment ofnon-core assets and strengthen the appraisal and risk management processes and controlswhich are expected to improve the asset portfolio quality as well as cash flow of YourCompany and make the balance sheet of Your Company healthier.
SANCTIONS AND DISBURSEMENTS
The economic climate was not very conducive during the year due to subdued creditdemand volatility in international crude oil and metal prices and other global issueslike trade war. The strict regulations by the regulators especially after the failure ofcertain large NBFCs made the business more difficult in the NBFC sector. Under suchcircumstances Your Company adopted a cautious approach in its business to ensure newbusiness in quality assets while conserving enough liquidity. As a conscious strategymore standalone and less consortium loans were considered based on past experience indebt servicing and recovery rates. In order to further improve existing risk profile onthe assets and the liabilities side conscious efforts were made to increase the share ofshort term loans while reducing level of project loans.
During the year under consideration Your Company sanctioned and disbursed loan tothe tune of Rs.3760 crore and Rs.3238 crore respectively vis--vis sanctions anddisbursement of Rs.7216 crore and Rs.4434 crore respectively in FY 2017-18.
During the FY 2018-19 Your Company focused on recoveries from Non-Performing Accounts(NPA) by initiating various proactive measures. Aggregate amount of Rs.1207 crore wasrecovered from NPAs including National Company Law Tribunal (NCLT) resolution casesamounting to Rs.1007.30 crore. Besides this Your Company was also successful in exitingfrom few of the long standing unquoted project equity investments and recovered Rs.780crore including Rs.745 crore from Equity Shares in a thermal power case. Your Company hadreceived security receipts in earlier years towards part value of assignments of certainNPAs to Asset Reconstruction Companies (ARCs). During the year under report redemption ofsome of the security receipts resulted in recovery of Rs.555 crore. Your Company iscommitted to continue its aggressive approach for recovery from NPAs and other stressedassets through various modes and strategies.
ADHERENCE TO THE CORPORATE GOVERNANCE
The Report on Corporate Governance for the FY 2018-19 forms separate part of the AnnualReport. During the Year under report Your Company has made all out efforts for complianceof the conditions of Corporate Governance as stipulated in the Guidelines on CorporateGovernance for Central Public Sector Enterprises 2010 SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 and Non-Banking Financial Companies Corporate Governance (Reserve Bank) Directions 2015. However the requirements w.r.t.Board constitution could not be met in absence of requisite number of IndependentDirectors on the Board of the Company. Application for appointment of IndependentDirectors has already been made with the Department of Financial Services being theAdministrative Ministry in Charge. The appointments are awaited.
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.
| ||Dr Emandi Sankara Rao |
| ||Managing Director & CEO |
|Date : 24.06.2019 ||DIN: 05184747 |