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Business News/ Industry / Maharashtra govt-backed NBFC stares at a huge NPA problem

Maharashtra govt-backed NBFC stares at a huge NPA problem

Sicom hopes to tackle the bad assets through loan recoveries, improvement in finances through increased fee income

The rise in NPAs was because of the company’s risk management system which was not up to date. Photo: Pradeep Gaur/MintPremium
The rise in NPAs was because of the company’s risk management system which was not up to date. Photo: Pradeep Gaur/Mint

Mumbai: Sicom Ltd was formed to finance industries in Maharashtra but the non-banking financial company is now in need of some help.

The state government controlled company is witnessing a surge in bad loans, which it hopes to tackle through loan recoveries and also by improving the finances through increased fee income.

Net non-performing assets (NPAs) as a percentage of net advances have risen from 1.81% in March 2009 to 17.21% in March 2014, the last fiscal year for which the company’s balance sheet has been approved, data available on the registrar of companies (RoC) website showed.

The rise in NPAs was because of the company’s risk management system which was not upto date and also due to certain issues with the treatment of collateral, said Ashish Kumar Singh, managing director at Sicom in an interview on 23 July.

Sicom so far used to go by market rates on collateral especially for real estate financing, which was inflated by borrowers, Singh said.

“I have decided to use only the state government’s ready reckoner rate for collateral. Now we demand collateral of two times the ready reckoner rate. This is a learning," Singh said adding that NPAs have also risen due to the slowdown in the economy post the financial crisis.

He said unlike banks, NBFCs cannot restructure their NPAs.

The Reserve Bank of India declined to comment on Sicom’s bad loans. “We are yet to receive the (latest) balance sheet from Sicom and hence cannot comment," said RBI spokesperson in a reply to query via email.

Founded in 1966, Sicom is currently the nodal agency for the state government’s MAITRI (Maharashtra Industry, Trade & Investment Facilitation) cell.

The state government owns 49% in the company. US-based private equity firm JC Flowers, which bought 36.58% from the Specified Undertaking of the Unit Trust of India (Suuti) in 2008, and Japanese lender Shinsei Bank Ltd with 5.53% shares are the two other large shareholders.

Rising NPAs has affected company’s loan growth, which according to Singh has been flat for the last three years. Net profit fell by 142% to 81 crore or 13.32 per share in March 2014 from 196 crore or 32.30 per share in March 2013.

A former Sicom official who now works with a private sector NBFC said the rise in its NPAs was a result of unfetered growth in the last five years. “In the last four to five years the company’s assets have doubled. Quality of assets was ignored in the pursuit of aggressive asset growth," the official said on the condition of anonymity.

Sicom’s asset base more than doubled to 7,819 crore in March 2013 from 3,108 crore in March 2009. It has come down to 7,049 crore in March 2014, figures from the RoC and the company website show.

The company’s NPAs have risen mostly from power and road projects, Singh said while adding that he is now upgrading the company’s risk management skills, focusing on recovery of loans.

Singh hopes to bring down NPAs to 2% in the next three years, mainly through loan recovery. It is looking to improve profitability by increasing the share of fee-based income through advisory services.

“Right now our fee-based income is about 5% coming from advice given to private sector companies on infrastructure projects. We are looking to take it to 20% to 25% in the next couple of years," Singh said adding that Sicom plans to service other state governments to raise fee income.

“Governments need a lot of help, so we are trying to focus on all governments to give advisory like drafting their expressions of interest, request for proposals and legal agreement which they sign with those concessionaries which they hire. That is one area which we believe we have a huge opportunity," he said.

The company will also launch a 500 crore to 1,000 crore special situations fund to help turn around stressed assets.

“We believe there are many promoters that can turn around with a little bit injection of liquidity they can turn around so we believe that the bet to taken on them rather than greenfield projects. Some people (investors) have already shown interest," he said.

Analysts say that NBFCs like Sicom can play a key role in promoting small and medium enterprises. But for that it should not seen as a post-retirement job for senior bureaucrats.

“It has been seen that, SICOM made wonderful job whenever its top leadership was in able hands and also when its top leadership was eager to do its job," said V P Raja former state finance secretary.

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Published: 12 Aug 2015, 07:18 AM IST
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