Weighed down by losses and bad loans, SBI Global Factors (SBIGF), a subsidiary of State Bank of India (SBI), is revamping its business strategy and going slow on expansion plans.
The company incurred a loss of Rs 125.6 crore for the year ended March, compared with a profit of Rs 6.6 crore a year ago. SBI attributed the deterioration in financial health to the slowdown in the economy, higher provisioning for non-performing assets (NPAs) and write-offs.
SBI Chairman Pratip Chaudhuri, also chairman of the factoring subsidiary, said the company’s business model needed to change and shape up on its own. Factoring is a financing method in which a business owner sells accounts receivable at a discount to a third-party funding source, to raise capital and resources.
| FACT BOX | |||
| Key financial indicators | Mar-09 | Mar-10 | Mar-11 |
| Net Interest Income [Rs cr] | 171.7 | 266.6 | 103.2 |
| Net Profit(loss) [Rs cr] | 79.1 | 6.6 | -154.5 |
| Total Asset [Rs cr] | 3,388 | 3,164 | 2,371.50 |
| Gross NPAs [in %] | 10.38 | 20.96 | 25.71 |
| Source: ICRA report | |||
SBIGF’s gross NPAs increased to 25.7 per cent in 2010-11, compared with 21 per cent in 2009-10, owing to a rise in slippages and low recoveries. The company made accelerated write-offs/provisions to clean up the balance sheet, with provisioning at Rs 263.50 crore in 2010-11, against Rs 246.85 crore in 2009-10. Reflecting the sluggish pace of industrial production and the weak growth in business, the company’s turnover dived from Rs 12,978 crore in 2009-10 to Rs 7,605 crore in 2010-11. According to rating agency ICRA, SBIGF’s capitalisation and liquidity profile are comfortable. However, this is partly offset by the stressed quality of assets and a reduction in business volume.
The factoring entity adopted a risk-averse strategy in extending credit in 2010-11. It plans to reorganise its product portfolio in the current financial year to generate quality operating income. Chaudhuri said the thrust would now be on cleaning the book and improving asset quality. SBIGF would focus on letter of credit discounting, a low-risk and low-margin business, along with domestic and export factoring. The company also plans to maintain its cautious stance on reverse and import factoring. Despite the loss in 2010-11 and a decline in the scale of operations, its capital adequacy ratio was 25.7 per cent as on March 31, (Tier-I capital of 18.73 per cent), compared with 20.96 per cent in 2009-10.