IFCI Ltd Management Discussions

1. Industry Structure and Developments*

Industry Outlook Financial entities have generally emerged resiliently from the pandemic and are expanding their business as the economic recovery takes hold. Their asset quality has improved and capital positions remained strong. Macro stress tests reveal that Scheduled Commercial Banks would be able to withstand adverse macroeconomic circumstances. Also, any negative shock to house prices is not likely to significantly impact banks capital positions. Sensitivity analysis shows that credit concentration risk and equity price risk may not be substantial but banks, especially PSBs, having substantial unrealised losses in their books at the beginning of the interest rate tightening cycle, portends risks to their financial health going forward. Network analysis results suggest that contagion losses have increased during H2:202122.

Non Banking Financial Companies (NBFCs)

Aggregate credit extended by NBFCs stood at 28.5 lakh crores in March 2022. Loans to industry constituted the largest segment (39.1 per cent), followed by personal loans (27.4 per cent) and those to services (15.3 per cent). Credit to the agriculture sector accounted for a miniscule share (1.8 per cent). Government owned NBFCs accounted for 45.6 per cent of aggregate credit extended by all NBFCs. Their dominant share of over three fourth of the industrial loans has, however, been receding. In terms of credit dispensation by category of NBFCs, investment and credit companies (NBFCICC) and infrastructure finance companies (NBFCIFC) predominated in gross loans and advances in March 2022. The GNPA ratio of NBFCs eased in March 2022 from 6.8 per cent in September 2021, the moderation witnessed across both public and private sector NBFCs. The improvement was primarily on account of 340 bps dip in the GNPA ratio of the services sector. Nevertheless, it remained higher than other sectors at 9.9 per cent. There was a larger concentration of NPAs in the industrial sector for which the loan book size far exceeds that of the services sector. The aggregate NNPA ratio of NBFCs also ebbed in March 2022, despite a 90 bps rise in the NNPA ratio for the industrial sector loans on account of curtailed provisioning. The capital position of NBFCs remained robust and their Return on Assets (RoA) recouped in March 2022. Borrowings remained the major source of funds for NBFCs, mainly in the form of debentures and bank borrowings.

NBFCs were the largest net borrowers of funds from the financial system, with gross payables of 12.46 lakh crore and gross receivables of 1.62 lakh crore as at endMarch 2022. Over half of their borrowings were from SCBs and this share increased further during H2:202122 as their reliance on funding by AMC MFs and insurance companies reduced. Instrument wise, the NBFC funding mix saw a rise in Long Term loans whereas the share of Long Term debt instruments and CPs declined during 202122.

2. Opportunities & Threats

To create national manufacturing champions and generate employment opportunities for the countrys youth, PLI Schemes are the cornerstone of the Governments push for achieving an Atmanirbhar Bharat. The objective is to make domestic manufacturing globally competitive and to create global Champions in manufacturing. The strategy behind the PLI schemes is to offer companies incentives on incremental sales from products manufactured in India, over the base year. They have been specifically designed to boost domestic manufacturing in sunrise and strategic sectors, curb cheaper imports and reduce import bills, improve cost competitiveness of domestically manufactured goods, and enhance domestic capacity and exports. Following are the PLI and other Schemes of Government of India, where IFCI has been appointed as the nodal agency/ Project Management Agency (PMA):

Sl. No. Particulars of the PLI & Other Schemes	Details of the Schemes available on the below Portals / Website
1 Scheme for Promotion of manufacturing of Electronics Components and Semiconductors (SPECS)	https://specs.ifciltd.com
2 Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing (PLILSEM)	https://pli.ifciltd.com
3 PLI Scheme for critical Key Starting Materials (KSMs)/Drug Intermediates (DIs)/ Active Pharmaceutical Ingredients (API) (PLIBulk Drugs)	https://plibulkdruss.ifciltd.com
4 PLI for Medical Devices (PLIMD)	https://plimedicaldevices.ifciltd.com
5 Scheme for Promotion of Bulk Drugs Parks	https://pharmaceuticals.gov.in/schemes/guidelinesschemepromotionbulkdrugparks
6 Scheme for Promotion of Medical Devices Parks	https://pharmaceuticals.gov.in/schemes/guidelinesschemepromotionmedicaldevicesparks
7 PLI Scheme for Food Processing Industry (PLISFPI)	https://plimofpi.ifciltd.com
8 PLI for IT Hardware (PLIITHW)	https://pliithw.com
9 PLI for White Goods (PLIWG)	https://pliwhitegoods.ifciltd.com
10 PLI Scheme for Automobile & Auto Component Industry (PLIAuto)	https://pliauto.in
11 PLI Textile Products: MMF segment & Technical Textiles	https://pli.texmin.gov.in
12 PLI Scheme for Drone and Drone Components	https://www.civilaviation.gov.in/en/applicationplischeme

 

Note:

1. IFCI is also associated with the Ministry of Heavy Industries (MHI) for carrying out International Competitive Bidding for PLI Scheme National Programme for Advanced Chemistry Cell Battery Storage (PLIACC).

2. IFCI is also associated with India Semiconductor Mission as Agency for Techno Financial Appraisal, Due Diligence and Verification for (i) Scheme for setting up of Semiconductor Fabs, (ii) Scheme for setting up of Display Fabs and (iii) Scheme for setting up of Compound Semiconductors / Silicon Photonics / Sensors Fab/ Discrete Semiconductors Fab and Semiconductor Assembly, Testing, Marking and Packaging (ATMP)/ Outsourced Semiconductor Assembly and Test (OSAT) facilities in India.

On other fronts, Efforts are being made to create synergies on the CSR front amongst Group Companies by consolidating these activities under a single organization. Further details are covered in the section on Corporate Social responsibility.

Various training courses are being organized for employees on a wide range of topics such as BRSR framework, CSR, Climate Finance/ESG, Advanced Financial Modelling Negotiation skills, Risk Management.

IFCI through its subsidiary Stock Holding Corporation of India Limited (SHCIL), is making contribution in promotion of digital economy in the country. SHCIL is one of the largest Depository Participants, besides being the countrys largest premier Custodian in terms of assets under custody. SHCIL also acts as a Central Record Keeping Agency for collection of stamp duty, ecourt fee and eregistration in various States and Union Territories. As on March 31, 2022, estamping services were operational in 23 States and UTs and SHCIL mobilised an amount of 39,672 crore in FY 202122 as compared to 24,897 crore in FY 202021 in e stamping services i.e. an increase of about 59%. The number of certificates issued in FY 202122 were 15.22 crore as compared to 10.57 crore in FY 202021 i.e. an increase of about 44%.

IFCI Venture Capital Funds Limited (IVCF), IFCIs another subsidiary, caters to social sector and presently manages Venture Capital Fund for Scheduled Castes (VCFSC) and Venture Capital Fund for Backward Classes (VCFBC), both initiatives of Ministry of Social Justice and Empowerment (MoSJE) to promote entrepreneurship among the select segments of the society by providing concessional finance.

On 14th April 2022, IVCF, in association with MoSJE and Dalit Chambers of Commerce & Industry (DICCI), had conducted a national level event to provide further impetus to entrepreneurship in the SC Community and to bring them in the mainstream business. The objective was to create a platform to SC Youth to showcase their innovative ideas and get funding upto 30 lakh under Ambedkar Social Innovation and Incubation Mission (ASIIM). In the event, the contribution of successful SC entrepreneurs across MSMEs were recognized under Dr. Ambedkar Business Excellence (ABEA) felicitation. IVCF is also promoting Dr Ambedkar Young Entrepreneur League (AYE), a Mentor Network that helps to connect the budding entrepreneurs with industry experts/mentors; Promotes sharing of domain knowledge & experience from business experts/mentors with young SC entrepreneurs. AYE has onboarded 90 Mentors with varied skills / experience and 157 Mentorship sessions have been facilitated.

The details of all the subsidiaries are available on the website of IFCI at www.ifciltd.com.

On the other hand, Your Company is struggling with liquidity risk, negative CRAR, high NPA level and downward revision in credit rating. The immediate objective of Your Company is to reduce the level of NPAs through aggressive recovery efforts and maintain sufficient liquidity to meet liabilities. Efforts were also made to adopt cost optimization measures and to cut on avoidable expenses.

The fact that the Government of India is the Promoter and the largest equity shareholder of Your Company, offers sufficient comfort and confidence to the stakeholders. The Government of India has consistently infused funds in Your Company through equity participation. For the year 202122, the Government had infused funds aggregating upto 100 crore in January 2022. The Government has also infused funds aggregating upto 100 crore in September 2022 for the year 202223.

3. SegmentWise or ProductWise Performance

Your Companys primary business is to provide financial assistance and it operates under a single segment reporting framework.

4. Outlook

The provisional estimates of national income released by the National Statistical Office (NSO) on May 31, 2022 placed Indias real Gross Domestic Product (GDP) at a growth of 8.7% for FY 202122 (YoY basis) visavis a contraction of ()6.6% registered in previous FY. The provisional estimates of GDP growth for FY 202122 take the economy above its prepandemic level and exhibit improvement. The GDP growth of 4.1% has been registered in Q4 of FY 202122 (YoY basis) in comparison to 2.5% growth registered in the corresponding quarter of previous FY.

The impressive 10.3% growth registered in Industry Sector (Mining & Quarrying, Manufacturing, Electricity, Gas, Water Supply & Other Utility Services and Construction) in comparison to contraction of ()3.3% in previous FY has largely contributed to the overall GDP growth for FY 202122. The Services Sector (Trade, hotels, transport, communication & broadcasting, Financial, Real Estate & Professional Services, Public administration, defense and other services), grew by 8.4% visavis a contraction of ()7.8% registered in previous FY.

Indian Economy grew at a decelerated rate in Q4 of FY 202122 in comparison to previous 3 quarters wherein it grew by 20.1%, 8.4% and 5.4% in Q1, Q2 and Q3, respectively. The economy was hit hard by the third wave of COVID Pandemic. As the economy was gaining pace after the third wave, global supply bottlenecks due to outbreak of the RussiaUkraine war and higher input costs again slowed the pace of recovery. The contraction in the manufacturing sector, which struggled with supply bottlenecks and high input prices, in the last quarter of FY22 is a cause of concern. The other worrying aspect is the reduction in consumption to GDP ratio in Q4 of FY22, despite bouncing back of investment to GDP ratio. The slowest quarterly growth in Q4 of FY22 was also partly because of the unfavorable base effect. Share of Private Consumption in GDP fell significantly to 55.5% in Q4 of FY22 from 61% in Q3 of FY22 resulting in moderation of growth in Private Final Consumption Expenditure (PFCE) growth to 1.8% in Q4 FY22 in comparison to 7.4% in Q3 of FY22. High inflation has had a dampening impact on consumer sentiments. Other highfrequency indicators such as IIP consumer goods and auto sales are also reflecting the weak consumption spending in rural and urban areas.

The global economy continues to grapple with multidecadal high inflation and slowing growth, persisting geopolitical tensions and sanctions, elevated prices of crude oil and other commodities and lingering COVID19 related supply chain bottlenecks. Global financial markets have been roiled by turbulence amidst growing stagflation concerns, leading to a tightening of global financial conditions and risks to the growth outlook and financial stability. As per RBI monetary policy review during June 0608, 2022, it is expected that the tense global geopolitical situation and the consequent elevated commodity prices would impart considerable uncertainty to the domestic inflation outlook. The restrictions on wheat exports should improve the domestic supplies but the shortfall in the rabi production due to the heat wave could be an offsetting risk. The forecast of a normal southwest monsoon augurs well for the kharif agricultural production and the food price outlook. Edible oil prices remain under pressure on adverse global supply conditions, notwithstanding some recent correction due to the lifting of export ban by a major supplier. Consequent to the recent reduction in excise duties, domestic retail prices of petroleum products have moderated. International crude oil prices, however, remain elevated, with risks of further passthrough to domestic pump prices. There are also upside risks from revisions in the prices of electricity. Early results from manufacturing, services and infrastructure sector firms polled in the Reserve Banks surveys expect further input and output price pressures going forward.

The RBI monetary policy review indicated that the recovery in domestic economic activity is gathering strength. Rural consumption should benefit from the likely normal southwest monsoon and the expected improvement in agricultural prospects. A rebound in contactintensive services is likely to bolster urban consumption, going forward. Investment activity is expected to be supported by improving capacity utilisation, the governments capex push, and strengthening bank credit. Growth of merchandise and services exports is set to sustain the recent buoyancy. Spillovers from prolonged geopolitical tensions, elevated commodity prices, continued supply bottlenecks and tightening global financial conditions nevertheless weigh on the outlook. Taking all these factors into consideration, the real GDP growth projection for 202223 is estimated at 7.2%, with Q1 at 16.2%; Q2 at 6.2%; Q3 at 4.1%; and Q4 at 4.0%, with risks broadly balanced.

5. Risks and Concerns

In order to address risks, Your Company has put in place an Integrated Risk Management Policy (IRMP) which addresses Credit Risk, Market Risk, Operational Risk and AssetLiability Management, as a part of Comprehensive Risk Management Framework which is integrated with its business model.

The General Lending Policy, IRMP, Liquidity Risk Management and other business policies of Your Company are reviewed periodically, keeping in view the changing economic and business environment. The Risk Management Vision Statement and Qualitative Risk Appetite Statements of IFCI have also been put in place. Parameters included in the Qualitative Risk Appetite statement are tested periodically.

Your Company assessed the Portfolio level risks by way of monitoring of actual exposures against prudential limits, stress testing under various scenarios, annual rating migration exercise, rating distribution, portfolio rating highlighting the quality of portfolio, mapping of internal and external ratings. Your company regularly monitors and revises its Benchmark Rates based on current market, macro & micro economic factors and profitability. As part of Ind As implementation, Your Company estimates rating gradewise Probability of Default (PD) numbers of its credit portfolio, based on past data while Loss Given Default (LGD) numbers are worked out based on past history of cashflows from NPAs. The risk components are utilized for calculation of Expected Credit Loss (ECL), as part of Ind AS implementation. The Risk and Asset Liability Management Committee of Executives (RALMCE), analyses the Dynamic Liquidity Position, Structural Liquidity Gaps and Interest Rate Sensitivity positions, on a periodic basis, based on extant regulatory prescriptions. The midoffice function of Integrated Treasury reports to the Risk Management function and acts as an independent risk monitoring functionary. Your Company has a scientific methodology for fixing IFCI Benchmark Rate for long and short term loans. Methodology for risk based pricing and fixing risk premium over benchmark rate for each rating grade is in place. To manage the Operational Risks, there are adequate internal controls and systems in place, aided and assisted by Internal Audit, Internal Financial Controls, remote backup of data, Disaster Management Policy, IT security, physical security and suitable insurance of insurable assets of Your Company, as well as of the assets mortgaged to Your Company. Besides, a mechanism for stress testing of loan portfolio and measurement of liquidity position is also in place, to assess likely impact on CRAR, profitability and liquidity. Your Company continues to strive for development of a strong culture for risk management and awareness within the organization.

6. Internal Control Systems, their adequacy and Internal Audit

Your Company has an adequate Internal Control System commensurate with size, scale and complexity of its business and allied operations. The efficacy of these internal controls is being verified by the Internal Audit Department on a regular basis. From the Financial Year 201819, the internal audits are being carried inhouse by a team of experienced personnel. The periodicity of such audits varied from quarterly to yearly depending upon the criticality and materiality of transactions based on the scope approved by the Audit Committee of Directors.

7. Material Development in Human Resources, Industrial Relations Front, Including Number of People Employed

Your company believes that skilled, energised and engaged Human Resource pool is the foundation for effective performance of any organization. Focusing on activities that lead to the development of human resource pool with such competencies was the mainstay of Human Resources Management in Your Company, throughout the year.

The performance of the organization in the recent past required the creation of structures that promote outof the box thinking amongst employees, in order to mount effective response to the challenges being faced. In this direction, several initiatives were undertaken wherein focus was on creation of cross functional teams. These teams identified problems/challenges on various fronts, suggested ways to address the same and were also made responsible for implementing the suggestions. Institutional structures wherein such working groups have been at the forefront to redress many challenging issues have not only brought innovative solutions but have also increased employee engagement.

Your organization also managed to deal effectively with continued challenges posed due to Covid19 throughout the year. Measures such as Workfromhome policies to safeguard health and safety of employees, deploying a Rapid Action Task force along with strict implementation of Standard Operating Procedures (SOPs) mandated by local authorities, staggered office hours, a sound IT support architecture, productivity monitoring systems, medical consultation services, COVID isolation center, sanitization precautions, and staff sensitization regarding COVID appropriate behavior were all put in place, to ensure that functioning of the organization is not hampered.

Your Company continued its focus on learning and development activities. Due to Covid19, most of the trainings were held through virtual/online learning mode. Considering that Advisory Services has emerged as a major business vertical within IFCI, special focus was laid to develop skills that cater to the requirements of this function. Further, efforts have also been made to skill the employees in the emerging business areas viz. ESG/ Sustainability/Climate Financing etc. through several learning/ certification programmes during the year. Additionally, employees were nominated to take part in conferences, webinars, and discussion forums that were held by the industry on digital platforms in order to keep them abreast with the most recent advancements and explore commercial potential. Your Company covered around 60% of its employees in various training/ conferences/seminars etc. In all, there were 137 nominations, in the inhouse training/workshops and external trainings, covering topics of functional and behavioral nature. Further, Your Company has also exposed its employees to various challenging assignments for their development.

Welfare of SCs/STs/OBCs/EWSs/PWDs

Your Company follows various policies and guidelines issued by the Government of India towards the upliftment of Scheduled Castes (SCs), Scheduled Tribes (STs), Other Backward Classes (OBCs), Economically Weaker Sections (EWSs), Persons with Disabilities (PwDs), etc. In accordance with the guidelines issued by the Government of India, the rules governing reservations and relaxations for certain categories are strictly adhered to. Additionally, appropriate representation of such employees is ensured by Your Company in various training programmes. During the year, Your Company provided training to 5 7% SCs, 100% STs and 65% OBCs employees.

Your company had 170 regular employees as of March 31, 2022, of whom 23 (14%) belonged to Other Backward Classes, 14 (8%) to Scheduled Castes, and 1 (1%) to Scheduled Tribes.

Annual Statement showing the representation of SCs, STs, OBCs & EWSs as on First January of the Year 2022 and Number of Appointments made during the preceding Calendar Year is as under:

Sl. No. Class	Number of Employees (as on 01.01.2022)					Number of appointments made during the preceding calendar year
						By Direct Recruitment					By Promotion			By Deputation/ Absorption
	Total number of employees	SCs	STs	OBCs	EWSs	Total	SCs	STs	OBCs	EWSs	Total	SCs	STs	Total	SCs	STs
1 2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18
1 Class I	168	14	1	23
2 Class III	1
3 Class IV	1
4 Contractual	7			1		3			1
Total	177	14	1	24	0	3	0	0	1	0	0	0	0	0	0	0

Annual Statement showing the representation of SCs, STs, OBCs & EWSs in various grades as on First January of the Year 2022 is as under:

Sl. No. Grades	Number of Employees (as on 01.01.2022)					Number of appointments made during the preceding calendar year
						By Direct Recruitment					By Promotion			By Deputation/ Absorption
	Total number of employees	SCs	STs	OBCs	EWSs	Total	SCs	STs	OBCs	EWSs	Total	SCs	STs	Total	SCs	STs
1 2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18
1 ED
2 F	2
3 E	21	1		2
4 D	33	2		3
5 C (including PS Gr C)	57	6	1	7
6 B (including PS Gr B)	46	4		7
7 A	9	1		4
8 Class III	1
9 Class IV	1
10 Contractual	7			1		3			1
Total	177	14	1	24	0	3	0	0	1	0	0	0	0	0	0	0

Groupwise representation of Persons with Disabilities (PwDs) up to 31.12.2021 is as under:

Sl. No. Group	Nature of Employees (as on 31.12.2021)					Number of appointments/promotions made during the calender year 2021(i.e. 01.01.2021 to 31.12.2021)
						Appointment by Direct Recruitment										Promotion
						No. of vacancies reserved					No. of Appointments made					No. of vacancies reserved					No. of Appointments made
	Total	VH	HH	OH	ID	VH	HH	OH	ID	Total	VH	HH	OH	ID	Total	VH	HH	OH	ID	Total	VH	HH	OH	ID	Total
1 2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22	23	24	25	26	27
1 Class I	1	1
2 ClassIII	1			1
3 ClassIV
Total	2	1		1

NOTE:

i. VH stands for Visually Handicapped (persons suffering from blindness or low vision)

ii. HH stands for Hearing Handicapped (persons suffering from hearing impairment)

iii. OH stands for Orthopaedically Handicapped (persons suffering from locomotor disability or cerebral palsy)

iv. ID stands for Intellectual Disability

8. Details of Significant Changes in Key Financial Ratios

The details of significant changes in Key Financial Ratios are as under:

Particulars	FY 2022	FY 2021	Remarks	Significant Changes*
Interest Coverage Ratio	0.93	0.92	Earnings before interest and taxes / Total Interest expense (Profit before Tax + finance cost)/finance cost	No (<25%)
Current Ratio	1.33	0.81	Current asset / current liability	Yes (>25%)
Debt Equity Ratio	15.74	4.58	Total borrowings / net worth	Yes (>25%)
Operating Profit Margin (%)	53.93%	8.91%	Operating profit / total revenue (Profit before tax + impairment)/total revenue	Yes (>25%)
Net Profit Margin (%)	265.41%	138.57%	Total comprehensive income / total revenue	Yes (>25%)
Return on Net Worth	143.86%	59.74%	Total comprehensive income / average net worth	Yes (>25%)

* Explanation: The change in the ratios was due to a decrease in operational income, which got impacted on account of prepayment of loans and consequent decline in standard assets. Further, as Debtor Turnover Ratio or Inventory Turnover Ratios are not applicable to the company (NBFC), the same has not been incorporated in the Table above.

9. Corporate Social Responsibility

IFCI SOCIAL FOUNDATION (ISF)

IFCI has always strived to conduct its business holistically and responsibly. At IFCI, apart from financial performance, community and social stewardship have been key factors for its holistic business growth. IFCI has been an early adopter of Corporate Social Responsibility (CSR) initiatives and has been involved in socially relevant activities ever since its inception in 1948. Today, it continues to work towards social and community development and areas needing focus and attention, through the IFCI Social Foundation (ISF), a registered Trust, established in 2014. ISF is functioning as an arm for CSR activities of IFCI and IFCI Group. ISF is guided by its values viz. Inclusiveness, Integrity, Commitment and Passion with the overall vision "To be one of Indias premier CSR Institutions and strive to make sustainable social impact with inclusiveness". Its major focus has been in areas of Education, Skill development, Healthcare and Sanitation, Poverty alleviation, Women empowerment and social welfare of women and girl child. The investment in CSR activities is project based and for every project, time frame and periodic milestones are set at the outset.

IFCI and ISF through its CSR projects have covered almost 23 states and Union Territories in India. The trust is registered for exemptions u/s 12A & 80G of the Income Tax Act. The trust is also registered with the Ministry of Corporate Affairs in line with CSR Amendment Rules, 2021. ISF carries out CSR activities on behalf of IFCI and IFCI Group Companies.

The Annual Report on CSR activities forms part of the Boards Report at Annexure I.

CORPORATE SOCIAL RESPONSIBILITY

As the Average Net Profit of IFCI Ltd for the last preceding three years was negative, IFCI was not required to allocate any amount for CSR activities for FY 202122.

Cautionary Statement

Certain Statements in Management Discussion and Analysis describing the Companys objectives, estimates and expectations may be forward looking within the meaning of applicable laws and regulations. Actual results might differ materially from those expressed or implied.