IFCI violated norms in sanctioning loans

Image: CAG
Source: ToI

A CAG report has found that a majority of loans given by IFCI during 2012-16 were either not in line with the General Lending Policy, or were given out without due diligence having been performed. This has led to a 78% increase in non-performing assets (NPAs) over the last three years.

The audit on IFCI was carried out due to the high level of NPAs, which amounted to Rs. 3,544.54 crore as of March 31, 2016, or 13.05% of total outstanding loans.

As per the CAG report, 78% of the above NPAs originated during the last three years.

About Non-Performing Assets (NPAs):

Image: Non-Performing Assets
Image Source: Kalyan City

A non-performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days or more in context of commercial loans while for a period of 180 days or more in context of consumer loans.

Banks are further required to classify NPAs further into Substandard, Doubtful and Loss Assets.

  1. Substandard Assets: Assets which have remained NPA for a period less than or equal to 12 months.
  2. Doubtful Assets: An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
  3. Loss Assets: As per RBI, “Loss assets are considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage (meaning no. 44) or recovery value”.

About IFCI:

IFCI, previously Industrial Finance Corporation of India, is an Indian government owned development bank to cater to the long-term finance needs of the industrial sector. It was the first development finance institution established by the Indian government after independence.

Until the establishment of ICICI in 1991, IFCI remained solely responsible for implementation of the government’s industrial policy initiatives.

In 1993 it was reconstituted as a company to impart higher degree of operational flexibility. IFCI was allowed to access the capital markets directly.



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