 "We want DFI status restored, to become a term lending institution: Malay Mukherjee")
Malay Mukherjee, the newly appointed managing director and chief executive officer of IFCI, tells Manojit Saha the non-bank finance company wants to bring down its cost of funds and grow profitably. Excerpts:
How do you plan to cap the rise in IFCI's cost of funds?
IFCI was established as a development finance institution (DFI) but later it has now been converted into a non-deposit taking non-banking finance company (NBFC). So, our cost of funds is very high. We have to raise funds from banks for lending. My first priority is to get back the DFI status. I have prepared a road map and taken up the matter with the government for getting back the DFI status. We should be allowed to issue bonds, which could be given SLR status like government securities. In addition, we are requesting the government to allow us issue long-term infrastructure tax free bonds. These efforts will bring down our cost of funds, help us reduce our lending rates and offer long-term loans. My vision is IFCI should play the role of a term lending institution and its cost of funds should be lower than the current level.
None of the banks can lend us money below their base rate, which is around 10 per cent now. After adding the spread, the minimum rate at which a bank can lend to us is 10.50-10.75 per cent. With the kind of rating we have, if we take debenture route or the bond route, it will not excite investors. Only way out is to get a DFI status so that we can issue SRL bonds and get cheap funds.
Another issue for IFCI is its deteriorating asset quality. How do you plan to tackle this?
Our net non-performing asset (NPA) ratio was 11.3 per cent but it has to be seen in the context of a decline in the size of the loan book. Now that we have started growing again, I expect net NPA to come down to eight-ten per cent by March, 2014 and to five per cent by March, 2015. We are also stepping up our efforts to recover loans. In addition, the change in our business model will also aid improvement in our asset quality. We had adopted a business model, when the infrastructure sector was doing well; we started entering into equity participation in projects instead of offering loans. The idea was to exit with a profit once the project becomes viable. But the infrastructure sector started suffering with the economic downturn and several bottlenecks like environmental clearance and fuel linkages. As a result, some of the projects, where we have taken equity, have become defunct. So, there is no return on that. Now, we are trying to change the business model. Banks have certain restrictions on lending, which are not applicable for NBFCs. We are trying to tap that opportunity till we get back our DFI status. This approach has already started yielding result. During the last quarter our disbursements have grown by over Rs 6,000 crore and in this quarter it is expected to be around Rs 10,000 crore.
What is your loan growth target for the FY14?
At present, the size of the loan book is Rs 29,000 crore and there are big repayments due. We expect to end FY14 with a loan book of Rs 31,000 crore.
IFCI has applied to the Reserve Bank of India (RBI) for a banking licence. Why?
We are keen to get a banking licence. Tourism Finance Corp, in which we have a majority stake, has also applied. If one of the applicants gets a licence, there will be a reverse merger and one entity will be created to offer banking services.
How do you plan to cap the rise in IFCI's cost of funds?
IFCI was established as a development finance institution (DFI) but later it has now been converted into a non-deposit taking non-banking finance company (NBFC). So, our cost of funds is very high. We have to raise funds from banks for lending. My first priority is to get back the DFI status. I have prepared a road map and taken up the matter with the government for getting back the DFI status. We should be allowed to issue bonds, which could be given SLR status like government securities. In addition, we are requesting the government to allow us issue long-term infrastructure tax free bonds. These efforts will bring down our cost of funds, help us reduce our lending rates and offer long-term loans. My vision is IFCI should play the role of a term lending institution and its cost of funds should be lower than the current level.
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What is the cost of funds now?
None of the banks can lend us money below their base rate, which is around 10 per cent now. After adding the spread, the minimum rate at which a bank can lend to us is 10.50-10.75 per cent. With the kind of rating we have, if we take debenture route or the bond route, it will not excite investors. Only way out is to get a DFI status so that we can issue SRL bonds and get cheap funds.
Another issue for IFCI is its deteriorating asset quality. How do you plan to tackle this?
Our net non-performing asset (NPA) ratio was 11.3 per cent but it has to be seen in the context of a decline in the size of the loan book. Now that we have started growing again, I expect net NPA to come down to eight-ten per cent by March, 2014 and to five per cent by March, 2015. We are also stepping up our efforts to recover loans. In addition, the change in our business model will also aid improvement in our asset quality. We had adopted a business model, when the infrastructure sector was doing well; we started entering into equity participation in projects instead of offering loans. The idea was to exit with a profit once the project becomes viable. But the infrastructure sector started suffering with the economic downturn and several bottlenecks like environmental clearance and fuel linkages. As a result, some of the projects, where we have taken equity, have become defunct. So, there is no return on that. Now, we are trying to change the business model. Banks have certain restrictions on lending, which are not applicable for NBFCs. We are trying to tap that opportunity till we get back our DFI status. This approach has already started yielding result. During the last quarter our disbursements have grown by over Rs 6,000 crore and in this quarter it is expected to be around Rs 10,000 crore.
What is your loan growth target for the FY14?
At present, the size of the loan book is Rs 29,000 crore and there are big repayments due. We expect to end FY14 with a loan book of Rs 31,000 crore.
IFCI has applied to the Reserve Bank of India (RBI) for a banking licence. Why?
We are keen to get a banking licence. Tourism Finance Corp, in which we have a majority stake, has also applied. If one of the applicants gets a licence, there will be a reverse merger and one entity will be created to offer banking services.