India's oldest DFI is sick. A new prescription is on way

The company reported a loss of  ₹444 crore in FY19, which shrank to  ₹278 crore in FY20. But the losses shot up to  ₹1,958 crore and  ₹1,991 crore in FY21 and FY22, respectively. With active capital support, IFCI again brought down losses to  ₹288 crore in FY23.
The company reported a loss of 444 crore in FY19, which shrank to 278 crore in FY20. But the losses shot up to 1,958 crore and 1,991 crore in FY21 and FY22, respectively. With active capital support, IFCI again brought down losses to 288 crore in FY23.

Summary

  • IFCI is likely to be merged with its subsidiary Stock Holding Corp, but any such move would be pursued by the new government after the general election

New Delhi: The government may infuse additional capital into IFCI Ltd and reverse-merge it with one of its subsidiaries, two people aware of the matter said, as part of a rescue plan for India’s oldest development finance institution where losses have mounted over the years.

Although the reverse merger option is still being worked out, IFCI may most likely be merged with its subsidiary Stock Holding Corporation of India (SHCIL), the people cited above said on the condition of anonymity. SHCIL is among the country’s largest depository participants, the largest premier custodian in terms of assets under custody, and the highest profit-generating entity under IFCI’s fold.

IFCI owns prime real estate, and holds significant stakes in several entities, including SHCIL and IFCI Financial Services Ltd (IFIN). However, it has done little lending business in the last two decades, and halted lending operations altogether in FY22 following liquidity constraints. It has reported annual losses for at least five years till FY23.

 

Queries sent to IFCI and the finance ministry on the reverse merger plans remained unanswered.

Financial services secretary Vivek Joshi, however, said that while the government is weighing a few options to rescue IFCI, any merger or reverse merger involving a subsidiary would be pursued by the new government after the general elections.

“We will finalize the cheapest option for restructuring IFCI. The option to close the entity would be very expensive," Joshi said, and added that although the institution’s lending activity has been suspended, it was doing well as an agency for government’s production-linked incentive (PLI) schemes.

The secretary did not name the subsidiary for the possible reverse merger and said no final decision had been taken yet.

The people cited earlier said that like in the previous two financial years, the government would again pump in 500 crore capital into IFCI in the second half of FY25—even though the Union budget of 2024-25 has not made any allocation—to reduce its debt and strengthen its financials, thereby easing the burden on any other entity or strategic investor involved in its restructuring.

IFCI shares closed 4.58% higher at 54.57 on the BSE on Friday.

Set up in 1948 as a development financial institution, IFCI was later turned into a non-banking finance company (NBFC). Its activities covered financing of various kinds of projects such as airports, roads, telecom, power, real estate, manufacturing, services, and other such allied industries. A combination of imprudent lending and poor management turned the institution sick in the late 1990s, and has failed to turn around despite continued government support.

The company reported a loss of 444 crore in FY19, which shrank to 278 crore in FY20. But the losses shot up to 1,958 crore and 1,991 crore in FY21 and FY22, respectively. With active capital support, IFCI again brought down losses to 288 crore in FY23.

In the current fiscal year, it reported losses in the first and third quarters. It clocked a profit of 83.77 crore in the second quarter as capital support from the government covered a large portion of its provisioning requirements.

As on 31 March 2023, IFCI had six subsidiaries: IFIN, IFCI Venture Capital Funds Ltd, IFCI Infrastructure Development Ltd, IFCI Factors Ltd, MPCON Ltd, and SHCIL.

Of these, IFCI has only two material subsidiaries: IFCI Infrastructure Development Ltd, which reported a profit of 16.13 crore in FY23, and SHCIL that returned a profit of 178.11 crore in FY23.

The company also had seven step-down subsidiaries: IFIN Commodities Ltd (indirect control through IFIN); IFIN Credit Ltd (indirect control through IFIN); IFIN Securities Finance Ltd (indirect control through IFIN); IDL Realtors Pvt. Ltd (indirect control through IIDL); SHCIL Services Ltd. (indirect control through SHCIL); Stockholding Document Management Services Ltd (indirect control through SHCIL); and Stock Holding Securities IFCI Ltd (SSIL).

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