Project Report on BANKING LAW

A CASE STUDY ON IFCI

Submitted to – Dr. AJAY KUMAR Submitted by – Swetank Sharma

Faculty of BANKING LAW Roll No – 1179

ACKNOWLEDGEMENT

Writing a project is one of the most significant academic challenges, I have ever faced.
Though this project has been presented by me but there are many people who remained in
veil, who gave their all support and helped me to complete this project.

First of all, I am very grateful to my subject teacher Dr. Ajay Kumar without the kind support
of whom and help the completion of the project was a herculean task for me. He donated his
valuable time from his busy schedule to help me to complete this project and suggested me
from where and how to collect data.

I am very thankful to the librarian who provided me several books on this topic which proved
beneficial in completing this project.

I last but not the least, I am very much thankful to my parents and family, who always stand
aside me and helped me a lot in accessing all sorts of resources.

I thank all of them!

Swetank Sharma

2
CONTENTS

I. Introduction.........................................................................................................................4

II. Conversion of IFCI into Government Company................................................................5

III. Non-banking Financial Companies in India...................................................................6

IV. Functions and objectives of IFCI Limited......................................................................7

V. Organizational set-up..........................................................................................................8

VI. OPERATIONS OF IFCI Ltd...........................................................................................8

1. Overall Operations:.........................................................................................................8

VII. IFCI – GUIDELINES ON CORPORATE GOVERNANCE.........................................9

1. Audit Committee.............................................................................................................9

1. Qualified and Independent Audit Committee..............................................................9

2. Role of Audit Committee..........................................................................................10

3. Audit Objectives........................................................................................................11

4. Audit Criteria and Methodology...............................................................................12

5. Audit Methodology:..................................................................................................12

6. Scope of Audit and Sample Selection.......................................................................12

2. Nomination and Remuneration Committee..................................................................13

1. Composition of Nomination and Remuneration Committee.....................................13

2. Role of Nomination and remuneration Committee...................................................13

3. Risk Management Committee.......................................................................................14

VIII. Disclosures....................................................................................................................15

IX. Conclusion.....................................................................................................................16

X. Bibliography.....................................................................................................................18

3
I. INTRODUCTION

IFCI Limited is a Systemically Important Non-Deposit taking Non-Banking Financial

Company (NBFC-ND-SI) under the regulatory control of Reserve Bank of India (RBI)
and administrative control of the Department of Financial Services (DFS), Ministry of
Finance (MoF), Government of India (GoI). IFCI was initially established as a statutory
corporation in 1948 under the Industrial Finance Corporation of India (IFCI) Act, 1948
as the first development finance institution in the country to cater to the needs of the
industrial sector for long-term finance. It was registered later as a company under the
Companies Act, 1956 by virtue of IFCI (Transfer of Undertaking and Repeal) Act,
1993. The effect of enactment of the Repeal Act, 1993 was that provisions of IFCI Act, 1948,
pertaining to control by the Union Government over the affairs of IFCI Limited, its accounts
and audit, continued to apply even after the repeal for the purposes of exercising Government
Control.

The statutory corporations like the IFCI were expected to provide a solution to the long
standing complaint of inadequate long term financing facilities for both medium as well as
small enterprises Besides, it was expected to underwrite new issues, promote and
encourage new enterprises and while doing so, adopt a rational attitude rather than to
continue with the traditional and conservative practices for the advance of loans.

But it could not do so due to (1) its constitutional bindings. (2) lack of viable financial
structure (3) excessive degree of govt, control and interference and (4) lack of competent
and technical staff.1

In the post liberalization phase after 1991 the organization set up as well as business activities
under went truly significant transformation. After 15 years of experience as the pioneer
development bank in the country, IFCI was converted from a statutory corporation into
a public limited company on July, 1, 1993 pursuant to the IFC (Transfer of
Undertaking and Repeal) Act, 1993 and since then it has come to be known as the
Industrial Finance Corporation of India Ltd. The year 1992-93 (April 1992- to June 1993)
was a watershed for IFCI. An Ordinance was promulgated by the Govt, on 1st October
1992 to convert the IFCI into a company so as to enable IFCI to access the capital
market and reduce its dependence on Govt, guaranteed funds. The revised accounting

1
Nabhi’s, How to borrow from banks and financial institutions.Nabhi Publication. 2001. pp. 115.

4
 norms for banks had also been issued by the RBI and similar guidelines for accounting
standards to be followed by Financial Institutions were expected to follow. Consequently, an
added thrust was given to quality of the proposals considered for financial assistance.

Pursuant to the enactment of the Industrial Finance Corporation (Transfer of Undertaking and
Repeal) Act, 1993, on the 2nd April 1993, The IFCI Ltd. (also referred hereafter as IFCI) was
incorporated as a company under the Companies Act, 1956 on the 2nd May 1993 and the
Certificate for Commencement of Business was issued on the 24th June, 1993. As per the
notification issued by the Govt, of India, Ministry of Finance, Department of Economic
Affairs (Banking Division) on the 7th June 1993, the undertaking of IFCI under IFC Act,
1948 stands transferred to and vests in the aforesaid company with effect from the 1st July,
19932.2

II. CONVERSION OF IFCI INTO GOVERNMENT COMPANY

The Union Cabinet approved (10 August 1992) the conversion of IFCI Limited
(erstwhile Statutory Corporation) into a new Government Company under the
Companies Act, 1956. The Union Government decided that 51 per cent shares of IFCI
Limited would be retained by the RBI/Government owned or controlled institutions like
Public Sector Banks (PSBs) / Financial Institutions (FIs) / Insurance Companies which
held the shares of IFCI. Subsequently, in the context of the deteriorating financial status of
IFCI and likely systemic impact of IFCI defaulting on its liabilities, the Government decided
(2001) to infuse 400 crore in the form of 20-years Convertible Debentures. Thereafter, a
special financial assistance package of ` 5220 crore was recommended by Ministry of
Finance for IFCI in the form of Optionally Convertible Debentures (OCDs) with duration of
20 years. As part of this package, the first tranche of ` 523 crore was released (28 March
2003) in the form of Optionally Convertible Debentures. However, subsequent releases
(2003-04 onwards) under this package were converted to Grants-in-Aid. This package
received ex-post facto approval of the Cabinet in February 2005. An amount of ` 2409.31
crore was released as Grant-inAid2 from 2003-04 to 2006-073 . However, releases under this
financial package were stopped in the year 2007-08, since IFCI started generating profits.
The equity holding of Government Controlled Institutions in IFCI remained above the
threshold limit of 51 per cent till 2003-04.3Thereafter, IDBI and State Bank of India and
some of its subsidiaries, nationalized banks and financial institutions like Life Insurance
2
Ibid.

5
 Corporation of India, General Insurance Corporation etc. diluted their equity holdings
as a result of which the shareholding of Government Controlled Institutions fell below
51 per cent (by March 2005). Resultantly, IFCI lost its status of a deemed Government
Company.

However, the Ministry of Finance with the approval (August 2012) of Union Cabinet
restored the status of IFCI as a Government Company by converting Optionally
Convertible Debentures valued at ` 923 crore into equity. With this conversion, IFCI
became (2012-13) a deemed Government Company. Subsequently, IFCI became a
Government Company w.e.f. 7 April 2015 when the Government acquired six crore
preference shares from the existing preference shareholders (Scheduled Commercial Banks)
of IFCI.

III. NON-BANKING FINANCIAL COMPANIES IN INDIA

Non-Banking Financial Companies (NBFCs) have emerged as an integral part of the

financial system in India by providing a valuable alternative to conventional banking.
However, NBFCs continued to face a challenging economic environment in the last few years
on account of slow economic growth and relatively high credit costs arising from increased
risk perception. NBFCs witnessed stress in asset quality during the last few years due to the
economic downturn and weak operating environment, as the payback capacity of the
companies continued to be affected resulting in increase in non-performing assets (NPAs)
despite higher restructuring of accounts.4 The growing asset size of NBFCs has increased the
need for risk management in the sector especially in the context of their increasing NPAs. In
this context, non-deposit taking NBFCs having an asset size of ` 100 crore were classified as
systemically important NBFCs by RBI. However, from November 2014, this threshold
criterion was raised upwards to ` 500 crore.5

3
IFCI- Guidelines for Corporate Governance, IFCI,
https://www.ifciltd.com/upload/IFCI_Guidelines_on_Corporate_Governance.pdf, visited on 20/04/2018.
4
http://www.economicsdiscussion.net/essays/industrial-finance-corporation-of-india-ifci/18109
5
Supra 1.

6
IV. FUNCTIONS AND OBJECTIVES OF IFCI LIMITED

IFCI Limited, as an NBFC-ND-SI regulated by RBI, had been providing financial

assistance in the form of short, medium or long-term loans or equity participation
primarily to agrobased industries, service sector, infrastructure and capital &
intermediate goods industry. IFCI also promoted subsidiaries in the financial /
consultancy sector.6

1. It provides direct assistance to industries in the form of Term Loans.

2. It provides Foreign currency loans to the corporate to encourage foreign trade
3. It encourages the New as well as the existing corporate to raise capital through different
types of securities. IFCI undertakes the function of underwriting of corporate
securities.
4. It provides leasing and Hire-Purchase financing to industrial establishments.
5. IFCI provides Merchant Banking services and undertake project counseling, issue
management and debenture trusteeship assignments.
6. It provides soft loans to undertake modernization programmes.
7. IFCI offers Deferred Payment Guarantee Services to the Corporate (offering co-
acceptances on the debt obligation of the client).
8. IFCI provides technical assistance to Entrepreneur development.
9. It conducts Entrepreneurial Development Programmes.
10. IFCI finance the projects of self-employed, handicapped and blind people.
11. Seed capital assistance will be provided by IFCI through the State Financial Corporation
(capital required at initial stages of a business concern)
12. IFCI provides refinancing facilities to State Financial Corporation’s
13. It offers concessional rate of interest loans to the industries established in the backward
areas.
14. Special concessional interest loans are offered to modernize spinning and textile
industries.

6
https://economictimes.indiatimes.com/ifci-ltd/infocompanyhistory/companyid-10625.cms

7
 15. To encourage the high-tech project or to encourage young scientist, venture capital is
being provided.
16. It established the Risk Capital Foundation to provide soft loans to promoters of New
Ventures.7

In other words, IFCI’s role extends to the entire industrial spectrum performing
varieties of activities such as project financing, equipment financing, equipment leasing,
promotional, merchant banking and nodal agency. Its main services to fall under the
following broad categories

 Project Finance
 Financial services (including Merchant Banking and Allied Services)
 Comprehensive Corporate Advising Services4

V. ORGANIZATIONAL SET-UP
The Company is managed by a Board of Directors assisted by the Chief Executive Officer &
Managing Director (CEO&MD) and Deputy Managing Director (DMD). Further, Executive
Directors (EDs) govern the operations of the Company with the assistance of Chief General
Managers and General Managers heading respective departments. The Company operates
through various departments mainly Credit Appraisal, Monitoring & Industry Research, NPA
Acquisition, Resolution and Legal.

VI. OPERATIONS OF IFCI LTD.

1. Overall Operations:
Pursuant to the restructuring of IFCI from a statutory corporation, a company with effect
from the 1st July, 1993 and keeping in view the introduction of stringent norms for
income recognition, asset classification and provisioning, an added thrust was given to
quality of the proposals considered for financial assistance. Following this cautious
approach, during the period July, 1993 - March, 1994, overall sanctions of IFCI under its
various schemes of assistance aggregated Rs. 2790.58 crores in respect of 325 projects.
These were 27% higher, on annualized basis for the 9 months period when compared to
the period of 15 months period of 1992-93 (April, 1992 to June, 1993). Total

7
http://shodhganga.inflibnet.ac.in/bitstream/10603/9584/11/11_chapter%205.pdf .

8
 disbursements during the period aggregated Rs. 1431.54 crores as against Rs. 2464.10
crores disbursed during the earlier period of 15 months in 1992-937.8
The year 1995-96 marked the third year of IFCI’s operations after its conversion from a
Statutory Corporation into a Public Limited Company. Capitalizing upon the newer
challenges and opportunities offered by the ongoing accelerated economic reforms in
the country. IFCI recorded excellent growth in its operations during the year. Overall
sanctions during the year aggregated Rs. 10,300 crores in respect of 540 projects
compared to Rs. 5719 crores for 445 projects during the previous year, registering growth
of 80.1%. Total disbursements during the year aggregated Rs. 4,563 crores, which was
higher by 60.8%, compared to Rs. 2,839 crores in the previous year, thereby providing
direct employment to over one million people.
1. Composition of Assistance
Financial assistance sanctioned by IFCI consists of broadly two groups:-
a. Asset Creation- The assistance under asset creation is provided under the following
heads:- A) Direct Finance B) Underwriting/Guarantees C) Indirect Finance
b. Short-Term Loans or Corporate Loans

VII. IFCI – GUIDELINES ON CORPORATE GOVERNANCE

1. Audit Committee

1. Qualified and Independent Audit Committee

The Company shall at all times have a qualified and independent Audit Committee with
given terms of reference as prescribed under the provisions of the Companies Act, 2013,
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and other
applicable laws / Rules / Regulations as may be in force from time to time. (1) The Audit
Committee shall have minimum three Directors as Members. Two-thirds of the Members of
Audit Committee shall be Independent Directors.9 (2) All Members of Audit Committee
shall be financially literate and at least one member shall have accounting or related
financial management expertise. Explanation (i): The term “financially literate” means the
ability to read and understand basic financial statements i.e. balance sheet, profit and loss

8
Nabhi’s, How to borrow from banks and financial institutions.Nabhi Publication. 2001. pp. 115.
9
https://economictimes.indiatimes.com/ifci-ltd/infocompanyhistory/companyid-10625.cms

9
account, and statement of cash flows. Explanation (ii): A member will be considered to have
accounting or related financial management expertise if he or she possesses experience in
finance or accounting, or requisite professional certification in accounting, or any other
comparable experience or background which results in the individual’s financial
sophistication, including being or having been a chief executive officer, chief financial officer
or other senior officer with financial oversight responsibilities. (3) The Chairperson of the
Audit Committee shall be an Independent Director.10

2. Role of Audit Committee

The role of the Audit Committee shall inter-alia include the following:

 To consider internal audit reports, reviews internal controls and systems and provides
guidance and direction to the internal audit function. To review the corporate accounting
and reporting practices and also considers changes in accounting policy. Review with the
management the quarterly/ half yearly and final financial statements of the Company,
before submission to the Board for approval.
 To have an oversight of the Company’s financial reporting process and the disclosure of
its financial information so as to ensure that the financial statement is correct, sufficient
and credible.
 To review with the management, the annual financial statements before submission to
the board for approval, with particular reference to:
A. Matters to be included in the Director’s Responsibility Statement in the Board’s
Report in terms of section 134 of the Companies Act, 2013.
B. Changes, if any, in accounting policies and practices and reasons for the same.
C. Major accounting entries involving estimates based on the exercise of judgment by
management.
D. Significant adjustments made in the financial statements arising out of audit findings.
E. Compliance with listing and other legal requirements relating to financial statements.
F. Qualifications/ modified opinions in the draft audit report, if any
G. Disclosure of any Related Party Transactions.11

10
http://www.economicsdiscussion.net/essays/industrial-finance-corporation-of-india-ifci/18109 .
11
https://www.cag.gov.in/sites/default/files/audit_report_files/Chapter_1_-
_Introduction_of_Report_No.16_of_2017_-
_Performance_audit_Union_Government_Credit_Risk_Management_in_IFCI_Limited_Reports_of_Ministry_of
_Finance.pdf

10
 To review, with the management, performance of statutory and internal auditors, and
adequacy of the internal control systems.
 To review the adequacy of internal audit function, if any, including the structure of the
internal audit department, staffing and seniority of the official heading the department,
reporting structure, coverage and frequency of internal audit. It can have discussion with
internal auditors regarding any significant findings and follow up there on.
 To review the findings of any internal investigations by the internal auditors/ auditors/
agencies into matters where there is suspected fraud or irregularity or a failure of internal
control systems of a material nature and reporting the matter to the Board.
 To have discussion with statutory auditors before the audit commences, about the nature
and scope of audit as well as post-audit discussion to ascertain any area of concern.
Review with the independent auditor the co-ordination of audit efforts to assure
completeness of coverage, reduction of redundant efforts and the effective use of all
audit resources.
 To look into the reasons for substantial defaults in the payment to the depositors,
debenture holders, shareholders (in case of non-payment of declared dividends) and
creditors.
 Powers of Audit Committee:
i. To investigate any activity within its terms of reference.
ii. To seek information, on and from an employee.
iii. To obtain outside legal or other professional advice.
iv. To secure attendance of outsiders with relevant expertise if it considers necessary.
v. To protect whistle blower.
 To review the follow-up action on the audit observation of the C&AG Audit.
 To review the follow-up action taken on the recommendations of Committee on Public
Undertakings (COPU) of the Parliament.

3. Audit Objectives

The objectives of this Performance Audit were:

 To examine compliance with General Lending Policy of the Company.

11
  To check the existence of sound credit appraisal mechanism including due diligence
in sanction and disbursement of loans.
 To examine the effectiveness of recovery mechanism.
 To examine the efficiency of credit monitoring mechanism.12

4. Audit Criteria and Methodology

The criteria for reviewing the performance of the Company were drawn from the following
sources:

 RBI Guidelines for NBFCs-ND-SI

 Guidelines / circulars of the administrative Ministry
 Industry practices
 Lending Policy of the Company
 Business Plan of the Company
 Credit Appraisal System
 Sanction / disbursement conditions
 Loan agreements
 Recovery policy
 Legal documents relating to cases

5. Audit Methodology:

Entry conference was held on 7 April 2016 with the Management of IFCI and representative
of DFS, MoF to discuss the audit scope, objectives, criteria etc. Field audit was carried out
during April 2016 to July 2016. The draft Report was issued to IFCI on 19 September 2016
and replies thereto were received on 4 November 2016. After incorporating the response of
the Management, the draft performance audit report was issued to the Ministry on 10 January
2017. The Ministry's replies (16 February 2017) as well as response received during the exit
conference (17 February 2017) have been duly considered while finalizing this performance
audit report.13
12
http://shodhganga.inflibnet.ac.in/bitstream/10603/9584/11/11_chapter%205.pdf .
13
Nabhi’s, How to borrow from banks and financial institutions.Nabhi Publication. 2001. pp. 115.

12
6. Scope of Audit and Sample Selection

Audit reviewed the Company’s performance in credit appraisal, sanction process, post-
sanction monitoring and credit recovery procedures. Compliance with the guidelines issued
by RBI and effectiveness of monitoring by administrative ministry was also reviewed. The
period covered in audit for review of loans sanctioned, was four years from 2012-13 to 2015-
16.The review included examination of compliance with financing guidelines, loan
agreements and RBI Guidelines relating to sanction and disbursement of financial assistance.
However, as regards review of NPAs, the period prior to 2012-13 was also covered to
examine the sanction, monitoring and recovery etc. This was due to the fact that as per
guidelines issued by RBI, the assets in respect of which the interest or principal remains due
for more than five months, are classified as NPA. Further, the assets which remained NPA for
a period not exceeding 16 months5 were to be classified as sub-standard assets while the
assets which remained sub-standard for a period exceeding 16 months were to be classified as
doubtful asset.14

2. Nomination and Remuneration Committee

1. Composition of Nomination and Remuneration Committee

The company has in place Nomination and Remuneration Committee. The Committee shall
comprise at least three Directors, all of whom shall be Non-Executive Directors and at least
half shall be Independent. Chairman of the committee shall be an Independent Director. The
Chairperson of the company (whether executive or non-executive) may be appointed as a
Member of the Nomination and Remuneration Committee but shall not Chair the Meeting of
the Nomination and Remuneration Committee.

7. Role of Nomination and remuneration Committee

 Identifying persons who are qualified to become directors and who may be appointed in
Senior Management as per the criteria laid down and recommending to the Board their
appointment and removal. “Senior Management” means personnel of the Company who
are members of its core management team excluding Board of Directors comprising all

14
https://www.cag.gov.in/sites/default/files/audit_report_files/Chapter_1_-
_Introduction_of_Report_No.16_of_2017_-
_Performance_audit_Union_Government_Credit_Risk_Management_in_IFCI_Limited_Reports_of_Ministry_of
_Finance.pdf

13
 members of management one level below the executive directors, including the
functional heads.
 The Committee shall evaluate performance of every Director.
 The Committee shall formulate the criteria for determining qualifications, positive
attributes and independence of a Director and recommend to the Board a Policy relating
to the remuneration of the Directors, KMP and other employees.
 The Committee shall also formulate and recommend to the Board a policy, relating to the
remuneration of the Directors, Key Managerial personnel and other employees.
 To formulate the criteria for evaluation of Independent Directors and the Board.
 To devise a Policy on Board Diversity.
 To decide on the annual bonus/ variable pay pool and policy for its distribution across
the executives and non-unionised supervisors, within the prescribed limits.
 Whether to extend or continue the terms of appointment of the Independent Directors on
the basis of the report of performance evaluation of Independent Directors.15

3. Risk Management Committee

 The Company shall lay down procedures to inform Board members about the risk
assessment and minimization procedures.
 The Board shall be responsible for framing, implementing and monitoring the risk
management plan for the company.
 The Company through its Board of Directors shall constitute a Risk Management
Committee. The Board shall define the roles and responsibilities of the Risk
Management Committee and may delegate monitoring and reviewing of the risk
management plan to the committee and such other functions as it may deem fit.
 The Committee shall only consist of Members of the Board of Directors.
 The Risk Management Committee shall have the following terms of references:
1. Identifying and monitoring key risks of the institution.
2. Devising the policy and strategy for integrated risk management.
3. Satisfying itself that policies and procedures are in place to manage risks to which the
institution is exposed, including credit, market, operational and reputational risks.
4. Critically assessing the institution’s business strategies and plans from a risk
perspective and advising the Board suitably.16
15
http://shodhganga.inflibnet.ac.in/bitstream/10603/9584/11/11_chapter%205.pdf .
16
IFCI- Guidelines for Corporate Governance, IFCI,
https://www.ifciltd.com/upload/IFCI_Guidelines_on_Corporate_Governance.pdf, visited on 20/04/2018.

14
 5. Deciding the risk measurement methodologies, setting limits for risk management and
reviewing, periodically, the actual positions vis-à-vis the limits set.
6. Satisfying itself that exceptional reporting framework is in place in the institution.
7. Reviewing the risk management policies periodically and suggesting the changes
required in tune with the market environment.
8. Review of major policies viz., General Lending Policy, Credit Risk Management
Policy, Treasury and Investment Policy and recommend for approval of the Board.17

VIII. DISCLOSURES

Disclosure as per the Non-Banking Financial Companies – Corporate Governance (Reserve

Bank) Directions, 2015 The RBI Directions also stipulates that the NBFCs shall also disclose
in their Annual Financial Statements, the following:- a. Registration / License / Authorisation
by whatever name called, obtained from other financial sector regulators; b. Ratings assigned
by Credit Rating Agencies and migration of ratings during the year; c. Penalties, if any,
levied by any Regulator; d. Information namely, area, country of operation and joint venture
partners with regard to Joint ventures and overseas subsidiaries and e. Asset – Liability
Profile, extent of financing of parent company products, NPAs and movement of NPAs,
details of all off-balance sheet exposures, structured products issued by NBFCs as also
securitization / assignment transactions and other disclosures.18

Non-Banking Financial Companies – Corporate Governance (Reserve Bank) Directions,

2015 The Company shall periodically report to the Board on the progress made in Risk
Management System and Risk Management Policy and strategy followed in this regard. The
Company shall periodically report to the Board in addition to the Audit Committee of
Directors about the conformity with corporate governance standards which shall interalia
include the composition of the various committees, their role and functions, periodicity of the
Meetings and Compliance with coverage and review functions. The Company shall at all
times abide by the requirements of Non-Banking Financial Companies – Corporate
Governance (Reserve Bank) Directions, 2015 and as amended from time to time.19

17
Nabhi’s, How to borrow from banks and financial institutions.Nabhi Publication. 2001. pp. 115.
18
https://economictimes.indiatimes.com/ifci-ltd/infocompanyhistory/companyid-10625.cms
19
Ibid.

15
IX. CONCLUSION

The working of the IFCI came in for a large measure of criticism. In the first place, the rate of
interest which the corporation charged was extremely high. Secondly, there was a great delay
in sanctioning loans and in making the amount of the loans available.

Thirdly, the ‘corporation’s insistence on the personal guarantee of managing directors in

addition to the mortgage of property was considered wrong In the last two decades the
corporation had entered into new lines of activity, viz, underwriting debentures and shares
and guaranteeing of deferred payment in respect of imports from abroad of plant an
equipment by industrial concerns and subscribing to stocks and shares of industrial concerns
directly Besides, the performance of IFCI together with the work of other public sector
financial institutions has been extremely credit worthy in the last two decades.

The main objective of IFCI is to provide medium and long-term financial assistance to large
scale industrial undertakings, particularly when ordinary bank accommodation does not suit
the undertaking or finance cannot be profitably raised by the concerned issue of shares.

Since its inception in 1948, the IFCI has sanctioned net financial assistance up to March 1993
to the extent of Rs 15,430 crore against which the total disbursement was Rs 10,380 crore.
The industries of high national priority which have been receiving financial assistance from
IFCI include fertilizers, cement, power generation, paper, industrial machinery etc.

Again, the IFCI has registered an impressive performance by earning a net profit of 18.81 per
cent, i.e.. to the tune of Rs 217.59 crore during the period of half year ending on September
30, 1997 as against Rs 183.14 crore during the same period of the previous year.

In recent years, IFCI has introduced the following new promotional schemes:

(a) Interest subsidy scheme for women entrepreneurs,

(b) Consultancy fee subsidy schemes for providing marketing assistance to small scale units,

(c) Encouraging modernisation of tiny, small and ancillary units,

(d) Controlling pollution of small and medium scale units.

In recent years about 50 per cent of the assistance has been advanced to industrial projects
located in backward districts of country. However, in recent years, the performance of IFCI is
not at all satisfactory. Total amount of loan sanctioned by IFCI initially increased from Rs

16
3,746 crore in 1993-94 to Rs 6,580 crore in 1995-96 and then it gradually declined to Rs
1,050.4 crore in 2006-07 and then increased to Rs 4,015 crore in 2008-09.

But the total amount of loan disturbed by the IFCI which initially increased from Rs 2.163
crore in 1993-94 to Rs 4,586.5 crore in 1995-96 and then drastically fell to Rs 2,164.7 crore
in 2000-01 and then to Rs 278 crore in 2003-04 and then finally to only Rs 3,311 crore in
2008-09.

In 2012-13, total amount of financial resources sanctioned and disbursed by the IFCI stood at
Rs 2,219 crore and Rs 1,504 crore respectively. Unfortunately, IFCI has been worse affected
due to its huge non-paying assets, willful defaults etc.

The Government of India have also made an attempt to rehabilitate IFCI by subscribing Rs
400 crore through long term convertible bonds and also advised IDBI, SBI and LIC for
extending assistance worth Rs 200 crore each. In order to meet its outstanding liabilities the
Government of India has provided Rs 2,096 crore as loan during 2002-03 and 2003-04.

Again the share of non-performing assets (NPAs) in net loans advanced by IFCI stood at 28.0
per cent as at the end of March, 2005. Even then the IFCI is gradually becoming sick. The
Government of India is now seriously considering to merge IFCI with a large PSU bank such
as Punjab National Bank.  

17
X. BIBLIOGRAPHY

 http://shodhganga.inflibnet.ac.in/bitstream/10603/9584/11/11_chapter%205.pdf
 https://www.cag.gov.in/sites/default/files/audit_report_files/Chapter_1_-
_Introduction_of_Report_No.16_of_2017_-
_Performance_audit_Union_Government_Credit_Risk_Management_in_IFCI_Limited_
Reports_of_Ministry_of_Finance.pdf
 IFCI- Guidelines for Corporate Governance, IFCI,
https://www.ifciltd.com/upload/IFCI_Guidelines_on_Corporate_Governance.pdf, visited
on 20/04/2018.
 http://www.economicsdiscussion.net/essays/industrial-finance-corporation-of-india-
ifci/18109.
 https://economictimes.indiatimes.com/ifci-ltd/infocompanyhistory/companyid-
10625.cms
 Nabhi’s, How to borrow from banks and financial institutions.Nabhi Publication. 2001. pp. 115.

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