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Disinvestment of IFCI
Context:
The parliamentary committee on public undertakings has emphasised the need for a transparent and well-documented process in the disinvestment of the financially struggling Industrial Finance Corporation of India (IFCI).
More on News
- The committee highlighted that the sale or disinvestment of IFCI would directly or indirectly affect approximately 550,000 public shareholders, 92,000 retail bondholders, and 1,400 provident, gratuity, retirement, and pension funds invested in the institution.
- It underscored the necessity of safeguarding the interests of retail investors and public shareholders, who might be disproportionately impacted by the sale.
About IFCI
IFCI Ltd, originally known as the Industrial Finance Corporation of India, is a prominent development finance institution owned by the Ministry of Finance, Government of India. Established in 1948, it was initially set up as a statutory corporation to provide medium and long-term financial support to the industrial sector. In 1993, it transitioned into a public limited company following the repeal of the Industrial Finance Corporation Act, allowing it greater operational flexibility and access to capital markets.
Major Recommendations
- The committee’s report revealed that IFCI’s net owned fund (NOF) had plummeted from ₹2,623.43 crore in FY17 to a negative ₹2,874.66 crore as of FY22.
- This significant decline has rendered IFCI ineligible to operate as a non-banking financial company (NBFC) under Section 45-IA of the RBI Act, 1934.
- Additionally, IFCI’s loan portfolio has contracted from ₹14,530 crore in FY13 to ₹7,339.90 crore in FY22, with no new loans sanctioned since FY20.
- The mounting non-performing assets (NPAs), which stood at ₹6,515 crore as of FY22, have further exacerbated its financial crisis.
- The report pointed out that the steep decline in NOF, coupled with rising NPAs and a shrinking loan portfolio, has severely impacted IFCI’s solvency and ability to sustain its core lending operations.
- The loss of regulatory eligibility as an NBFC has further constrained its ability to raise funds, which has historically been crucial for its financial stability.
- The committee stressed the need for a structured and transparent approach to IFCI’s disinvestment, ensuring that all stakeholders’ interests are protected throughout the process.
