Almost a year after the failed attempt to rope in a strategic partner in IFCI, the government has started playing a more proactive role in the management of the non-banking finance company.
As part of the strategy to strengthen the board, over the last few months, the government has appointed five new independent directors in addition to increasing the number of its nominees on the board to two. Further, public sector insurer, Life Insurance Corporation of India (LIC), which is the largest shareholder in IFCI, has a nominee. LIC Managing Director Thomas Mathew T is a director on the IFCI board.
In October, the government appointed Prakash P Mallya, Tejinder Singh Laschar, K Raghuraman, K Narasimha Murthy and S Shabbeer Pasha as independent directors. In addition, K V Eapen, a Joint Secretary in the finance ministry, has been appointed as the second government nominee on the NBFC’s board. Sukriti Likhi, a director in the finance ministry has been on the IFCI board for a while. Traditionally, the joint secretary in-charge of institutional finance in the finance ministry has been an IFCI board member.
After the induction of new directors, IFCI board consists of 12 directors, which includes two from the management — Managing Director & CEO Atul Rai and whole-time director Sujit K Mandal.
The new directors met for the first time on January 30 to approve the quarterly result of the erstwhile development financial institution that is still trying to finalise a new business plan. Sources said that the new directors were “quite assertive” during the last board meeting.
“Possibly due to the changing environment in the context of corporate governance, the board members were more assertive in terms of seeking justification for some of the recent decisions of the management,” said source privy to the discussions.
While declining to disclose any detail, an IFCI spokesperson said that that enhanced board consists of former bankers, bureaucrats and professionals, which actually helps in guiding the organisation for future growth.
Sources said that some of the recent decisions of IFCI such as underwriting the right issues of Hindalco and Tata Motors and providing loans against shares pledged by promoters were discussed at the meeting. IFCI has given loans worth around Rs 1,200 crore against shares pledged with it, which accounts for over 50 per cent of its total disbursement of Rs 2,200 crore during the current financial year. This includes loans to Maytas Infrastructure, Unitech, United Spirits, Core Projects and Lupin, among others. Sources at the institution said that promoter funding was a lucrative business as it offered better returns which ranged between 16 and 18 per cent.
IFCI reported a 67 per cent drop in net profit to Rs 104 crore during quarter-ended December 2008, as against Rs 319 crore during the third quarter of 2007-08. However, the previous year’s results also included profits from the sale of investment to the tune of Rs 251 crore, which came down to Rs 19 crore during the current financial year due to the poor market conditions.
