Wednesday, January 3, 2007

IFCI to get a strategic partner

The Industrial Finance Corporation of India (IFCI) may get a strategic partner if the Indian Government has its way. The distressed organization has been forced to stop its lending activity, having accumulated losses of over Rs. 4000 crores. This has been a result of a combination of aggressive lending in the early part of the last decade, which later resulted in a good deal of the portfolio turning into bad loans, and higher cost of borrowings.

According to senior government officials, a proposal is being considered to bring on board a strategic investor which could even be a foreign or a local bank. The track record of the investor, including its lending business would be a key deciding factor in divesting the stake. The government has already been sounded out by a couple of top foreign banks operating in India, as well as an overseas firm specializing in recovering distressed assets. However, it is a given that such asset recovery firms or private equity funds would not be encouraged to partner the institution.

IFCI still has control over some good quality assets besides the fact that it has several subsidiaries or associates in various business segments. These include the credit rating agency-CARE, Tourism Finance Corporation of India (TFCI), an asset reconstruction firm —ACE, a factoring firm—Foremost Factors, IFC Venture Capitals, IFCI Financial Services besides equity holding in SHCIL, DFHI, NSE, OTCEI and LIC Housing Finance.

In the last quarter, IFCI reported profit after tax of Rs. 115.83 crores against a total income of Rs. 325.47 crores. Recovery of bad loans (which have shrunk to Rs. 667 crores in 05-06) has improved and the proceeds are now being parked in deposits of top rated firms. IFCI has also started lending in a limited way to finance firms which have a AAA rating.

Read the article from The Economic Times.

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