Sicom Ltd, the industrial development finance corporation of Maharashtra, forsees an increase in its non-performing assets (NPAs) by three to four per cent during the current financial year.
This is attributed to the fact that under the new regulatory norms, an asset will be treated as sticky if the interest or installment remains overdue for more than 180 days as against the 365 days leeway allowed earlier.
With the RBI allowing financial institutions (FIs) to extend working capital finance like banks, and the latter being allowed to enter into the FIs' domain of term-lending, the NPA norms for both have been put on par.
"We had managed to bring down the net NPAs from 17 per cent in 1998-99 to 14.57 per cent in 1999-2000 and to 10.55 per cent in the last financial year. Now due to the new tighter norms on NPA recognition, Sicom's sticky assets will increase by three to four per cent," A K D Jadhav, managing director, Sicom said.
The corporation, however, expects to counteract the rise in the NPAs by making aggressive recoveries and not financing any risky greenfield ventures by new-generation entrepreneurs. Net NPAs of the corporation stood at Rs 190 crore at end of 2000-01.
Another factor is that the new investment norms require equity investments made by Sicom, as part of its project financing activity, and are now required to be marked to market as against carrying them at cost in its books earlier.
In the long-run, Sicom will have to follow in the footsteps of the FIs and convert itself into a bank as cost of funds at around 12 per cent was proving to be uncompetitive, vis-a-vis the commercial banks, whose cost of funds is around 9 per cent as they are able to tap low-cost savings and current accounts, Jadhav said.
He said Sicom, in which the Maharashtra government owns 49 per cent stake, UTI 40 per cent, corporates 9 per cent and employees 2 per cent, had signed a memorandum of understanding (MoU) with the Satara-based United Western Bank (UWB) about a year back, for joint financing of projects.
The MoU, however, did not take-off as relations between the bank management and Sicom, which holds 9.91 per cent stake in UWB, turned bitter on the issue of electing Sicom's nominees as directors on UWB's board. Sicom presently has two nominees -- A K D Jadhav and Sharad Upasani -- on UWB's board and the corporation, as per state government directive, sought nomination of two more directors at UWB's extraordinary general meeting held in early August under the chairmanship of the company law board (CLB) nominee.
At the EGM, Sicom had complained to the chairman that 80 per cent of the proxy votes polled were invalid as signatures did not tally. Hence, Sicom asked for a scrutiny of the votes, Jadhav said. He added that a report on the scrutiny of the votes polled was awaited from the CLB and if the verdict goes against Sicom, it would pull out of the MoU.
