UPFC On a Streamline Path  

Snippets from a recent press conference convened by Shri Ashok Khurana, MD, UPFC Kanpur:  

Q. What is the present status of UPFC ?  

Ans. UPFC remained profitable till 1991-92. In 1992-93 it closed the year with a net operating loss of Rs. 32.75 cr. The situation improved in later years when UPFC diversified into working capital term loan (WCTL), lease finance etc. Absence of effective follow up of the units and poor quality of the loan portfolio led to large NPAs, negative net working results, progressive erosion of net worth and declining  CAR.  

Q. How do you propose to cope up with the situation ?   

Ans. By an aggressive programme of the recovery of NPAs along with adoption of a conservative approach to future credit growth and by revamping the credit appraisal system.  

Q. What are the key elements of the proposed turn around ?   

Ans.The key elements-  

  • Improving recovery of NPAs-this includes segregation of will- ful defaults recession driven defaults, monitoring of recovery, action against top defaulters, giving specific rehabilitation package and encouraging one time settlements (OTS). UPFC has planned a series of Samadhan Gosthies wherein on the spot decisions at regional levels are proposed. 
  • Reducing Lending Rate - UPFC has lowered its lending rates in tandem with commercial banks. It is now offering its entrepreneurs Terminal Interest Rebate Benefit (TIRB) wherein an entrepreneur who is regular in his repayments is entitled to a rebate of 1% p.a. which reduces the effective interest rate to a level lower than that charged by the banks. 
  • Reviving the lending mix: UPFC proposes to diversify into the  service and infrastructure sectors thus reducing its dependence for income on the SSI sector - the present dependence on this sector being 80%. As a results the entire portfolio would get spread over in the next 5 years as: Industry 60%, Service 25% and Infrastructure - 15%. 
  • Appointment of Task Managers: Task Managers have been appointed for loans above Rs. 50 lakhs to improve the system of appraisal,  inspection, monitoring etc. so that remedial action, when needed, can be taken immediately. The Corporation will now be able to provide `one UPFC man' assistance service to each unit. 
All the accounts of the Corporation are now on Internet enabling it to redress the grievances of its clients while simultaneously allowing it to keep a check on the entrepreneurs as well as the officials.  

Q. How are you going to improve the profitability of UPFC ?  

Ans. UPFC has been borrowing at a very high rate of 18.5%. It expects to save Rs. 3 crore on interest payment by prepaying a loan of Rs. 25 cr. and another loan of Rs. 50 cr. It has recently earned Rs. 60 lakhs as fee on a loan to an expressway project.  

Q. What is your strategy to improve quality of lending ?    

Ans. UPFC has  diversified into non fund based activities. It has started lending to segments which can sustain high interest cost on account of a low turn over period. Industries like steel, cement, and paper which have been hit by recession have been exempted from  prepayment premium.  
Q. How do you plan to improve your loan portfolio ?   

Ans. The Corporation has appointed SBI capital to suggest improvement in existing Credit Appraisal System so as to avoid NPAs in future. Entrepreneur Counselling Programmes to provide entrepreneurs with on the job training have also been started.  

Q. What specific steps have you taken to improve your systems ?   

Ans. To reduce chances of fraud the system of verfication of original documents like sale deed etc. has been introduced.  

Q. What are you doing for your sticky accounts?   

Ans. Loans have been classified depending upon their age, assets, location, category. To bring transparency into the system the amount can be calculated by matrix. The borrower is encouraged to effect for OTSs at a predetermined matrix.  


The Uttar Pradesh Financial Corporation (UPFC) proposes to raise Rs. 25 crore through issue of bonds. The coupon rate on offer is 13 percent  payable quarterly. The face value of the bond is Rs. 1 lakh and minimum subscription is for one bond.  

Interest payments and principal repayments on these bonds have been guaranteed by the government of Uttar Pradesh. No oversubscription are to be retained.  


The Punjab State Industrial Development corporation (PSIDC) proposes to raise Rs. 30 crore of short term funds through a bond issue. In  June, PSIDC has raised Rs. 25 crore through two-year bonds. That issue had been very successful and had managed subscriptions in just three days. Like in the last issue, PSIDC does not propose to retain any oversubscriptions this time either.  

On offer in this issue are bonds with a face value of Rs. 1 lakh. The tenure of the instrument is just one year and the coupon rate on offer is 11.25 per cent payable annually.  

Interest and principal repayments on these bonds have been guaranteed by the government of Punjab.  


Pradeshiya Industrial & Investment Corporation of Uttar Pradesh Ltd. (PICUP) is in the private placement market with a Rs. 200 crore 7-year bond issue, at an interest of 13.85 per cent (payable half yearly), an official of the PICUP said on July 5. It is offering Rs. 100 crore  bonds, but will also have an option to retain another Rs. 100 crore in oversubscriptions.  


The Gujarat State Financial Corporation (GSFC) is planning to mop up Rs. 100 crore through private placement of bonds with financial institutions. This is being done to retire a part of its past debt which had been borrowed at higher interest rates.  

The bond issue will be launched after the announcement of the Credit Policy for the busy season on October 1, 1999.  


State-owned Tamil Nadu Industrial Development Corporation (TIDCO),  which went to the market to mop up 170 crore through bonds on behalf of the state government has mopped the targeted amount in less than two weeks.  

The bond issue including a green shoe option of Rs. 40 crore, which opened in July 26, was closed on August 6. 1999, well ahead of the scheduled August 25 closure. The proceeds of the issue would go to part finance three ongoing railway projects in Tamil Nadu.  

The proceeds will be handed over the Southern Railway, which has given a schedule of payment over a period of three years of the government. The current fiscal is the first year in the schedule. The Delhi based A.K. Capital Services Ltd. was the sole lead manager for the issue.  

The Supreme Court of India overruling a decision of the Madras High Court has held that interest on sticky loans kept in suspense account by a lender for three years, is not liable to Income tax.  

TIIC, which had been following Mercantile system of accounting up to the financial Year ended 30.6,1970, switched over to the interest suspense method of accounting under which interest on sticky loans was credited to Interest Suspense Account which did not form part of the  taxable income. As and when the interest was realised, it was credited to Interest Account and treated as income for tax purposes: Since the Income Tax Department did not accept this method, the case was referred to the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal, both of which decided in favour of TIIC. IT Department then went into appeal to the Madras High Court, which decided in favour of the Department. TIIC thereupon filed an appeal in the Supreme Court. The Supreme Court in its landmark judgement dated 13.5.1999 has allowed TIIC's appeal, based on a CBDT Circular of 1952, which was in force till 1978 and which stated that interest on sticky loans need not be included in the assessees income. Based on this, the Interest Suspense System followed by TIIC for the year 1972-73 to 1976-77 has been upheld by the Supreme Court. According to the Hon'ble Supreme Court, CBDT  circulars were consistent with provisions of section 145 of the IT Act.  

SICOM Venture Capital Fund, being floated jointly by SICOM, Small  Industries Development Bank of India (SIDBI), United Western Bank and Ratnakar Bank with an initial corpus of Rs. 24 crore is to invest in unlisted technology companies.  

To be based in Pune the Fund plans to dedicate 50 per cent of its corpus in information technology companies and the balance 50 per cent in bio technology and other knowledge based companies, mainly start-up firms having one to three years revenue track record and with potential for significant returns. It proposes to confine its activities mainly to Maharashtra.  

The Fund expects 10 times returns on its investments over a period of five years with an average return of 35 per cent on the venture capital deployed after likely losses due to failure of some of the enterprises.  

SICOM launches new packages  

In order to revitalise its traditional business portfolio SICOM Ltd. had unveiled a new funding strategy for high growth oriented  industries, especially information technology.  
The loans will have an average tenure of five years with a ballooning interest rate package. It will have a moratorium on principal interest repayment for one year. During the second year, the loans would have an average interest rate of ten per cent from the third year onwards would cost according to the individual performance of the firm.  

The quantum of loans offered under the scheme do not having a fixed cailing, SICOM Officials said adding, however, that the expected size of a loan would be between Rs. 2 crore and Rs. 15 crore.  

The loan scheme could also involve a profit sharing package with a part of the company's profits at the end of the repayment period  included in additional interest.  

Another feature of the Scheme would be an option of conversion of part of the loan into equity at SICOM's discretion. Loans will be extended to companies existing for a minimum three years with turnover levels between Rs. two crore and Rs. ten crore. The companies should have a sustained incremental turnover and profitability levels of at least 35 per cent per annum, and the projects should offer focused products or services which have a potential growth over the next five years.  

SICOM would focus the five centres of its activity in the country-Mumbai, Bangalore, New Delhi, Chennai and Pune as well as the two emerging centres of Hyderabad and Trivandrum for the new funding programme.  


SICOM's Chairman Shri Subhash Dandekar, speaking at its Annual General Meeting on 25th June, 1999, expressed concern over the economic upheaval and turmoil in the country during 1998-99, which had its impact on SICOM too.  

SICOM earned a net profit of Rs. 16.73 crore during this year (as against Rs. 28.77 crore in 1997-98). Its operating profit stood at  Rs. 88.31 crore as compared to Rs. 88.34 in the previous year. The total income during 1998-99 increased by 7% to Rs. 232.34 crore from Rs. 216.74 crore during 1997-98.   

The Gross Asset base of SICOM stood at Rs. 2,014 crore as on March  31, 1999. The sanction and disbursements, after considering the  outstandings for bill discounting as sanction and disbursement for the year 1998-99, were Rs. 666 crore and Rs. 600 crore, as compared to  Rs. 824 crore and Rs. 651 crore previously. The total recoveries of principal and interest for all loan products increased from Rs. 391  crore to Rs. 398 crore during this period.  

During 1998-99 SICOM started participating in the call money market  through a Primary dealer and participated in the repo transaction as a part of treasury management.  

To be able to face new challenges, Shri Dandekar outlined the new activities of SICOM, which included launching of a Venture Capital  Fund, with software as its initial focus and advancing loans to  software entrepreneurs. This will be a first step towards knowledge- based lending along with asset-based financing.  

For the last few years SICOM has stepped up its efforts to assist infrastructure development, the Chairman said. The Udaipur Bypass and Dhule Bypass road projects for which SICOM had given term loan  assistance last year, were implemented before schedule. During 1998-99 SICOM sanctioned Rs. 9.5 crore for Nashirabad rail overbridge and Kamala bypass which are being implemented by private parties through BOT route. SICOM is also promoting a joint venture with Enron for distributing natural Gas in industrial areas In Maharashtra.  

Concluding his address Shri Dandekar mentioned about SICOM successfully maintaining the credit rating by CRISIL for the Commercial Paper  programme of Rs. 50 crore as P1 + representing the highest safety regarding timely payment of interest and principal. During the year 1998-99 the credit rating of SICOM's fixed Deposit programme is FAA, he said.  

MIDC okays housing project   

The Maharashtra Industrial Development Corporation (MIDC) proposes to create a housing project on 35 hectares land of its Ranjangaon  industrial estate. It plans to spend Rs. 15 crore on developing plots, water, power and roads.  

The move is in response to the need for quality housing for workers of large industrial units coming up in the estate.  

MPFC - An overview   

Madhya Pradesh Financial corporation was established in the year 1955 under the State Financial Corporation's Act, 1951 with the object of providng financial assistance to small and medium scale industries being setup in the state of Madhya Pradesh.  

A lion's share of credit flow to small and medium scale sector comes from MPFC. MPFC has played a vital role of a catalyst during the span of over past four decades for the industrial development of the state.  

MPFC, since inception, has sanctioned for the loan assistance amounting to Rs. 864 crores to 7748 projects and disbursed Rs. 769 crores to 7403 projects till 31st March, 1999. This has resulted in providing ample job apportunities to the people of the state apart  from increasing production. Out of total sanctions amounting to  Rs. 864 amount of Rs. 622 crores relate to SSI Sector. Apart from its conventional term lending, MPFC has diversified its activities in  the recent past. It has obtained licence as Category I Merchant Banker with SEBI and has set up separate Merchant Banking division.  

MPFC extends financial assistane for expansion, diversification, modernisation, rehabilitation and technology upgradation within the  over all limits of the SFCs Act.  

In the year 1998-99 inspite of a recessionary trend in the industrial sector, it has achieved sanctions of Rs. 105 crores which is just  double as compared to last year's figure. The recovery figure has jumped to Rs. 95 crores during 1998-99 showing an increase of 16% over the last year. The increase in recovery has significantly reduced the level of non-performing assets of the Corporation.  

KSIDC offers special package for software units   

The Kerala State Industrial Development Corporation Ltd. (KSIDC) is offering following incentives for setting up software units in the state. These are in addition to those announced by the Kerala  government under its Information Technology Policy:  

  • Two years moratorium for repayment of principal loan. 
  • Subsidy processed by KSIDC. 
  • Software development expenses will be financed on the basis of professional valuation. 
  • State investment subsidy of 20 per cent (included in the means of finance) 
  • Increased margin money loan (included in the means of finance) 
  • Higher loans without collaterals for established business groups with good track records. 
  • Interest rebate of 0.5 p.c. for prompt repayment 
  • Interest reduced by one per cent for the first two years. 
  • Availability of support from venture capital fund of Rs. 20 crore for IT sector managed by Small Industries Development Bank of India floated with the support of KSIDC, and Kerala Financial Corporation.
RIICO advances Rs. 90 cr. aid to 50 projects   

The Rajastban State Industrial Development & Investment Corporation  Ltd. (RIICO) has provided financial aid worth Rs. 90.16 crore to 50 projects in 1998-99, despite the economic slowdown. These projects are expected to catalyse an investment of Rs. 177 crore.  

Of the 50 projects, 22 to which 28 crores were being advanced, are from textiles sector alone. They will manufacture cotton yarn, synthetic fabric and ready-made jeans.  

Five hotels have been advanced a term loan of Rs. 22.80 crore.  

Three engineering projects are being set up at Jodhpur (diamond tools), Bhiwadi (heat exchangers coil), Jaipur (electroplating).   

Two existing hospitals at Jaipur have been sanctioned Rs. 1.16 crore.  

A term loan of Rs. 50 lakh has been cleared in respect of a new hospital in Jaipur.  

The plastic industry has attracted three projects to which loans amounting to Rs. 1.42 crore are being advanced.  

HSIDC organises business meet in New Delhi   

Haryana State Industrial Development Corporation Ltd. (HSIDC) organised a business meet in New Delhi on 27th May, 1999 to disseminate  information regarding the services provided by it. Shri Y.S. Malik, Managing Director alongwith his senior colleagues interacted with entrepreneurs and they took on the spot decisions on the crystalised proposals. There were eight proposals involving investment of Rs. 16.91 crore and loan component of Rs. 10.06 crore, envisaging setting up projects in the areas of automotive components, packaging, pharmaceuticals, microwave electronics and engine components. Shri Y.S. Malik informed the gathering that HSIDC had recently come out with a concept of floating rate of interest for term loans bringing down the interest rates substantially, thereby providing it a cutting edge in the fiercely competitive financial market.  

Further, HSIDC had also reduced the interest rates on the existing borrowers in order to provide relief to the industry reeling under recession.  

HSIDC on internet   

HSIDC has hosted its web page an the internet. Its URL (Uniform Resource Locator) address is: Any information which is loaded on Web Page regarding HSIDC can now be accessed by any one throughout the world. This would enable the prospective entrepreneurs to beaware of SIDC's activities and future plans and also facilitate marketing of its various schemes as also sale of sites/plots in it industrial estates.