IFCI Ltd

FOR FINANCIAL YEAR 2019-20

Dear Shareholders,

I welcome you to the 27^th Annual General Meeting of IFCI Ltd. I hope that you all are doing well and keeping safe and healthy. The Novel Coronavirus has impacted the World, every country, business and individuals. But I am hopeful that we would emerge out of this crisis stronger, more resilient and wiser. I thank you for your continued trust and unwavering support, extended to IFCI all these years.

Before coming to IFCI's performance, I would like to dwell on the developments in the world and Indian economy and the NBFC sector during the financial year 2019-20.

MACRO-ECONOMIC SCENARIO & DEVELOPMENTS

The world economy growth decelerated to 3.3% in 2019 as compared to 3.6% in 2018. The economic activity slowed down in 2019 on account of rising trade and geopolitical tensions increased uncertainty about the future of the global trading system and international cooperation more generally, taking a toll on business confidence, investment decisions, and global trade. A notable shift toward increased monetary policy accommodation-through both action and communication- has cushioned the impact of these tensions on financial market sentiment and activity, while a generally resilient service sector has supported employment growth. All these factors contributed to a significantly weakened global expansion, especially in the second half of 2019, after experiencing strong growth in early 2018, thereby reflecting financial consolidation and slow-down in manufacturing and trade and currency related issues in major economies.

The COVID-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity. As a result of the pandemic, the global economy is projected to contract sharply by -3% in 2020, much worse than during the 2018-19 financial crisis.

The Indian economy slowdown was primarily on account of relatively slower growth rate observed in Q4 of FY 2018-19 at 5.8%. However, the Indian economy, consecutively for the 2^nd year, was able to retain its place as the fastest growing major economy in the world in FY 2019-20 as well, as it continued its climb on an upward growth path, though at a slower pace at 4.2% in 2019-20 vis-a-vis 6.8% growth registered in 2018-19.

GLOBAL DEVELOPMENTS & OUTLOOK

Global growth is projected at -4.9% in 2020, 1.9% points below the April 2020 World Economic Outlook (WEO) forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6.5% points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperilling the significant progress made in reducing extreme poverty in the world since the 1990s.

As with the April 2020 WEO projections, there is a higher-than-usual degree of uncertainty around this forecast. The baseline projection rests on key assumptions about the fallout from the pandemic. In economies with declining infection rates, the slower recovery path in the updated forecast reflects persistent social distancing into the second half of 2020; greater scarring (damage to supply potential) from the larger-than-anticipated hit to activity during the lockdown in the first and second quarters of 2020; and a hit to productivity as surviving businesses ramp up necessary workplace safety and hygiene practices. For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity. Moreover, the forecast assumes that financial conditions-which have eased following the release of the April 2020 WEO-will remain broadly at current levels. Alternative outcomes to those in the baseline are clearly possible, and not just because of how the pandemic is evolving. The extent of the recent rebound in financial market sentiment appears disconnected from shifts in underlying economic prospects-as the June 2020 Global Financial Stability Report (GFSR) Update discusses-raising the possibility that financial conditions may tighten more than assumed in the baseline.

All countries including those that have seemingly passed peaks in infections should ensure that their health care systems are adequately resourced. The international community must vastly step up its support of national initiatives, including through financial assistance to countries with limited health care capacity and channelling of funding for vaccine production as trials advance, so that adequate, affordable doses are quickly available to all countries. Where lockdowns are required, economic policy should continue to cushion household income losses with sizable, well- targeted measures as well as provide support to firms suffering the consequences of mandated restrictions on activity. Where economies are reopening, targeted support should be gradually unwound as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivize the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic.

DOMESTIC DEVELOPMENTS & OUTLOOK

The International Monetary Fund (IMF) in its latest World Economic Outlook of April, 2019, issue had pegged growth for Indian Economy at 7.3% and 7.5% for FY 2018-19 and FY 2019-20, respectively. The estimates are on the back of continued recovery of investment and robust consumption amid a more accommodative stance of monetary policy and some expected impetus from fiscal policy.

The monsoon is expected to be near normal in FY 2019-20, however, there exists some uncertainty around it, not being evenly distributed among all regions of the country. The outlook for oil prices continues to be hazy, both on the upside and the downside risk. The financial markets remained volatile throughout FY 2018-19 and the fiscal situation at the general Government level requires careful monitoring. Overall, the output gap remains negative and, therefore, strengthening domestic growth impulses by spurring private investment assumes priority. Further, the consumer price inflation is expected to be 3.8% by end of 2019-20.

The IMF on June 24, 2020 projected a sharp contraction of 4.5% for the Indian economy in 2020, a "historic low," citing the unprecedented coronavirus pandemic that has nearly stalled all economic activities, but said the country is expected to bounce back in 2021 with a robust 6% growth rate.

The International Monetary Fund (IMF) projected the global growth at -4.9% in 2020, 1.9% points below the April 2020 World Economic Outlook (WEO) forecast. It has projected a sharp contraction in 2020 of -4.5%. Given the unprecedented nature of this crisis, as is the case for almost all countries, this projected contraction is a historic low.

The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021, global growth is projected at 5.4%, the report said.

"India's economy is projected to contract by 4.5% following a longer period of lockdown and slower recovery than anticipated in April". The IMF's record reveals that this is the lowest ever for India since 1961. However, India's economy is expected to bounce back in 2021 with a robust 6% growth.

NBFC SECTOR

Non-Banking Finance Companies (NBFCs) have consistently been increasing their share of lending to the Indian financial sector. However, in line with the general trend in banking &financial services industry, deterioration in asset quality of NBFC sector was witnessed in the past one year. As on September, 2019, there were 9,642 NBFCs registered with the Reserve Bank of India, of which 82 were deposit taking (NBFCs-D), and 274 were systemically important non-deposit taking NBFCs (NBFCs ND-SI). All NBFCs-D and NBFCs-ND-SI are subjected to prudential regulations such as capital adequacy requirements and provisioning norms along with periodic reporting requirements. The consolidated balance sheet size of the NBFC sector (including NBFC-D and NBFC-ND-SI, including Government NBFCs).

Although the NBFC sector grew in size from Rs.26.2 lakh crore in 2017-18 to Rs.30.9 lakh crore in 2018-19, the pace of expansion was lower than in 2017-18 mainly due to rating downgrades and liquidity stress in a few large NBFCs in the aftermath of the IL&FS event. This slowdown was witnessed mainly in the NBFCs- ND-SI category, whereas, NBFCs-D broadly maintained their pace of growth. However, in 2019-20 (up to September) growth in balance-sheet size of NBFCs- ND-SI as well as NBFCs-D moderated due to a sharp deceleration in credit growth.

The risk aversion among NBFCs-ND-SI coupled with their inability to mobilise adequate resources was reflected in the decrease in credit growth in spite of a fall in stressed assets ratio. However, for the services sector, stressed assets rose, reflecting the built-up stress in the real estate segment, where NBFC exposures are significant.

OPERATIONAL AND FINANCIAL PERFORMANCE OF IFCI

During the year, there was reduction in operational income on account of decline in loan assets, caused by prepayment of certain loans and increase in stage-3 assets, and absence of net gains on fair value changes in current Financial Year.

As the overall economic environment and especially, the credit offtake was subdued during FY 2019-20, IFCI's performance was also affected in line with the overall financial sector. Despite decline in operational income and fair value loss, Your Company could earn profit of Rs.281.05 crore before impairment on financial instruments, though suffered a total comprehensive loss of Rs.317.53 crore during the year under report, mainly on account of large amount of impairment made in respect of Stage-3 assets, especially, the cases admitted in National Company Law Tribunal (NCLT). The substantial amount of provisions enhanced the provision coverage ratio to over 49.05%, however, the capital adequacy ratio improve in current FY to 13.54% with Tier-I capital at 8.20%. Various strategic initiatives including measures for recovery were initiated during the year in order to maximize recovery under Insolvency and Bankruptcy Code (IBC) route and other modes, expedite divestment of non-core assets and strengthen the appraisal and risk management processes and controls, which are expected to improve the asset portfolio quality as well as cash flow of Your Company and make the balance sheet of Your Company healthier.

SANCTIONS AND DISBURSEMENT AND RECOVERY

While keeping the macroeconomic scenario during FY 2019-20 in view, Your Company adopted a cautious approach in its business, also to conserve enough liquidity, fewer fresh sanctions were granted worth Rs.158 crore. Further, disbursements were also curbed, where total disbursements in FY 2019-20 stood at Rs.742 crore. During the year, Your Company focused on recoveries from Non-Performing Accounts (NPA), by initiating various proactive measures. Aggregate amount of Rs.1,207 crore was recovered from NPAs including National Company Law Tribunal (NCLT)resolution cases amounting to Rs.1007.30 crore. Besides this, Your Company was also successful in exiting from few of the long standing unquoted project equity investments and recovered Rs.780 crore including Rs.745 crore from Equity Shares in a thermal power case. Your Company had received security receipts in earlier years towards part value of assignments of certain NPAs to Asset Reconstruction Companies (ARCs). During the year under report, redemption of some of the security receipts resulted in recovery of Rs.555 crore. Your Company is committed to continue its aggressive approach for recovery from NPAs and other stressed assets through various modes and strategies.

ADHERENCE TO THE CORPORATE GOVERNANCE

The Report on Corporate Governance for the FY 2019-20 forms separate part of the Annual Report. During the Year under report, Your Company has made all out efforts for compliance of the conditions of Corporate Governance as stipulated in the Guidelines on Corporate Governance for Central Public Sector Enterprises 2010, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Non-Banking Financial Companies-Corporate Governance (Reserve Bank) Directions, 2015. However, the requirements w.r.t. constitution of Board and certain Board Level Committees could not be met, in absence of Independent Directors on the Board of the Company. Application for appointment of Independent Directors has already been made with the Department of Financial Services, being the Administrative Ministry in Charge. The appointments are awaited.

CONCLUDING REMARKS & ACKNOWLEDGEMENT

With all the efforts being made by Your Company to further strengthen its operational, financial and human resources performance, I hope that it will overcome the challenges & emerge triumphant once again in the very near future.

I take this opportunity to thank the Government of India, especially the Ministry of Finance, the Ministry of Corporate Affairs, The Reserve Bank of India, The Securities & Exchange Board of India and all stakeholders including Banks and Financial Institutions, for the continued support and guidance provided to Your Company. Your Company expresses its gratitude for the professional advice and vision of the Board of Directors. I place on record my sincere thanks to all our esteemed shareholders, clients and investors for their unstinted support to the Company. I also wish to place on record my deep appreciation of the dedicated service of all the employees at all levels of Your Company.