gujarat state financial corporation Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS

1. (a) Industry structure and developments:

Gujarat State Financial Corporation is established to act as Regional Development Bank for accelerating industrial growth of the State by providing financial assistance mainly to small and smaller of the medium scale industries and to generate employment. Corporation played active role in promotion of industrial activity in the State of Gujarat till FY 2000-01. However, vigorous entry of other public and private financial institutions affected the fortune of the Corporation adversely. Non-availability of cheap funds and turning the loan assets into NPA resulted into GSFC making loss from FY 2000-01 and defaulted in repayment of debts. Corporation was compelled to discontinue its main activities of sanction and disbursement of loan since Financial Year 2001-02 and since then floating on with recovery of dues only.

(b) Opportunities and Threats

MSME sector has been accorded high priority by banks and financial institutions for term lending. Gujarat being an industrially developed State, ample opportunity is available for the business but the state of financial condition of the Corporation does not permit it to encourage and extend financial help to entrepreneurs. Having net-worth eroded long back and being unable to source cheap funds coupled with manpower shortage pose threat to the Corporation in re-entering the business in a matured manner.

(c) Segment-wise performance:

Corporation is primarily engaged in the business of term lending. All activities of the Corporation revolve around the said main business. Since discontinuance of sanction and disbursement, Corporation is concentrating on recovery of dues only. During the year under report, Corporation recovered an amount of Rs.5.21 crore as against Rs.1.61 crore recovered in the previous year.

(d) Outlook:

With the passage of time, almost all good accounts backed by securities have been settled either in the normal course of business or through One Time Settlement Schemes. The residual accounts available with the Corporation are entangled with legal and other issues. In such circumstances, recovery of dues from the loanees is expected to be contracted in the years to come.

(e) Risks and concerns:

Risk is an inherent part of business and the Corporation not free from various risks associated with the business. Over and above the normal risks, after effects of COVID-19 pandemic also added more concern to the recovery performance of the Corporation. Risk increases when recovery attempted from 100% Non-Performing Asset Portfolio. Inspite of introducing various clients oriented attractive One Time Settlement Schemes, Corporation is not in a position to recover on expected level which is a matter of concern to the Corporation.

(f) Internal control system and their adequacy:

Corporations internal control system provides for budgetary control and cost monitoring system. Corporation engaged services of an external firm of Chartered Accountants for internal audit so as to provide timely information to management. Regular management reviews are undertaken to ensure conformity with targets. The internal control system of the Corporation is adequate commensurate with the size of the Corporation.

(g) Financial Performance:

		(Rs. in crore)
	Year ended
p aruculars	31/03/2023	31/03/2022
Total Income	14.36	11.13
Interest expenses	135.62	133.74
Other expenses	3.63	4.91
Loss before depreciation & tax	124.89	127.52
Depreciation	0.26	0.29
Loss before tax	125.15	127.81
Loss after depreciation & tax	125.15	127.81
Balance carried over to balance sheet	(3,180.61)	(3,055.46)

(h) Material developments in Human Resources:

There is no reportable material development in human resources during the year under reference. Corporations staff strength, including employees on deputation/ loan services, reduced to 24 as on 31^st March, 2023 compared to 30 reported in the previous year.

(i) Details of significant changes in key financial ratios:

No significant change in key financial the financial ratios during the year under report as compared to immediately preceding financial year.

2. Disclosure of Accounting Treatment:

Prior to 1.4.2018, in case loanees opted for OTS, amount received from the loanee is first apportioned as per normal practice as under:

[1] Penalty & other charges

[2] Interest

[3] Principal

At the time of issuance of No Due Certificate, the effect of OTS scheme is given whereby amount credited to interest/penalty account during recovery period of OTS which otherwise was principal recovery as per OTS scheme is being given effect. The shortfall in principal account is compensated by crediting interest income and write off of the same amount.

Keeping in view the fact that all loan assets are NPAs and 100% provision is made, the aforesaid policy has been changed with effect from 1^stApril, 2018 as under:

"In case of loanees opted for OTS, amount received from the loanee is apportioned in the following order: -

1. Principal and capitalized expenses

2. Interest

3. Penalty and other charges

At the time of issuance of No Due Certificate, the shortfall in principal account, if any, is compensated by write off of the same amount."

The aforesaid policy has again been reviewed by the Audit Committee and as decided by the Board of Directors at their respective meetings held on December 19, 2022, it has been decided to change the Accounting Policy in case of OTS receipts with effect from April 01, 2022 as under: -

In case of loanees opted for OTS, amount received from loanee is first apportioned as per normal practice as under: -

(1) Penalty

(2) Interest

(3) Principal and capitalized expenses"

Due to the above changes in Accounting Policy, Rs.13.11 lakh received as recovery from OTS accounts pertaining to the NDC given during the period under reference, Rs.10.74 lakh has been recognized as interest income and balance amount of Rs.2.37 lakh has been credited towards principal. Therefore, during the year under reference, interest income is reduced by Rs.2.37 lakh and write-back of NPA provision increased by the same amount.

3. Cautionary statement:

Statements in the Management Discussion and Analysis describing the Corporations objective, projections, estimates and expectations may be "forward looking" within the meaning of applicable laws or regulations. Actual results may differ from those expressed or implied.