Wednesday, October 7, 2009

Surgery, not Medicines, for IFCI

As a developmental financial institution, IFCI helped build some of India’s critical projects. But is today’s IFCI groping in darkness, unable to find a sustainable business model?

With Government calling for the induction of a strategic investor in IFCI urgently, the problems plaguing the developmental bank are once again in the spotlight.

It is not clear what prevented IFCI from following the route of ICICI and IDBI in converting themselves to private banks, which is in fact an international model, as developmental financial institutions became unviable.

Though IFCI’s profits have halved during the past year, its holdings in other companies should fetch it good returns in the long term. But there are no indications yet from IFCI on how to utilize these stakes.

Despite IFCI unable to replay a Rs. 1573 crore loan from Government at 0.1% interest rate, and despite it being converted to a grant, IFCI is still in doldrums, signaling a serious asset-liabilities mismatch. Restructuring has been in place since 2002, at the expense of further growth.

Some IFCI promoted subsidiaries have also run into problems, a recent example being their asset reconstruction company, Asset Care Enterprise, facing rejection from RBI about a nearly 50% divestment.

Questions to CEO Atul Kumar Rai’s office on these issues went unanswered at the time of publication.

IFCI also needs to develop a brand equity leveraging on its contributions to many of country’s critical projects.


Tuesday, October 6, 2009

Will ING Vysya’s Prospects Improve Anytime Soon?

There is no doubt that ever since its start in 2002, ING Vysya Bank has been an underperformer compared with its peers in the country’s private sector banking.

Despite having a big ticket international name of ING, this new generation private sector bank - which was in fact a marriage between an old generation private bank, Vysya Bank, and the Dutch banking major, ING - has been able to come up with only lackluster performance.

It was almost a squandering of an opportunity as ING Vysya was the only almost foreign bank that was allowed to operate as a fully Indian bank, complete with the inclusion of the ING name in its brand identity. All other foreign banks like Citibank, HSBC, & Standard Chartered had to put up with quite a number of restrictions in expanding their operations.

Now, with its first Indian CEO in place, the promoters of ING Vysya Bank must be hoping for a drastic change in the bank’s fortunes. But it is not clear what kind of experience the promoters are expecting from Shailendra Bhandari, who has got exposure to both Citibank and HDFC Bank.

ING, it should be noted, had to approach the Dutch Government to stay afloat, much like Citibank.

ING Vysya’s headline profits for the first quarter were impressive at 42%, but to realize that net interest income grew only by 9% is not comforting.

The bank continues to suffer from worsening gross and net NPA levels.

Due to its origins in an unlikely merger, the bank continues to suffer from a hybrid culture. For example, its workforce is divided 60:40 between an older group under the IBA remuneration norms, and a newer group under CTC terms. Lack of pensions is also a grievance with a section of the employees.

The bank’s CASA deposits ratio needs improvement, and it is not clear how ING’s retreat into its home markets internationally, would affect the prospects of ING Vysya Bank in India.