maharashtra state financial corporation share price Management discussions

MAHARASHTRA STATE FINANCIAL CORPORATION LIMITED ANNUAL REPORT 2005-2006 MANAGEMENT DISCUSSION AND ANALYSIS PRESENT INDUSTRIAL SCENARIO: The G.D.P. grew by 8.4 per cent during the F.Y. 2005-2006 as against the growth of 7.5 per cent during the previous year. The Industrial Sector recorded growth of 8.7 per cent during the year, which was marginally higher than the growth 8.6 per cent achieved during the previous year. Growth in the overall industrial production was mainly due to impressive growth of 9 per cent in the manufacturing sector. IMPACT OF THE PRESENT SCENARIO ON MSFC: The Central Government has highlighted the need for strengthening the Small and Medium Enterprises (SME) Sector recognising the significant contribution made by the SMEs in the field of Industrial Development particularly in the less developed areas of the country, high share in the export earnings, employment generation etc. The Union Finance Minister has announced about the policy package for augmenting credit to SME sector and to double the share of SME financing in a time period of 5 years. The Banking Institutions under the directions of RBI have taken significant steps towards strengthening the advances to the SME sector. Since its inception MSFC has played a crucial role in the development of Small Scale Sector in Maharashtra, Goa, Daman and Diu. A large number of units initially assisted by the Corporation have now achieved leading positions in the country in the fields of Electronic appliances, Pharmaceutica! Products, Engineering, Service Sector etc. The Corporation has however been facing various problems during the last few years, like many other term lending institutions providing long term credit, mainly on account of absence of level playing field in terms of borrowing cost of funds and competitive interest rates, where the commercial banks have added advantage. In its efforts for regaining strength and revival of its operations, MSFC has taken various steps by concentrating on maximizing recovery of dues, reduction in the operating cost, utilisation of the assets to the fullest possible extent and proposed diversification in terms of new activities. MSFC has approached the State Government and refinancing agencies for their assistance towards revitalization and restructuring of the Corporation. REVIEW OF OPERATIONS: The Corporation concentrated on maximising recovery during the financial year ended 31st March 2006. Sanctioning of loans to new projects was withheld and disbursement was effected on highly selective basis to the existing projects of the good borrowers. The Corporation did not sanction any loans during the Financial year 2005- 2006. The Corporation disbursed total term loan assistance of Rs.111.75 lakh during the F.Y. 2005-06 while the total recovery during the year amounted to Rs.76.01 crore. Since inception, the Corporation has sanctioned financial assistance amounting to Rs.3705.02 crore inclusive of term loans of Rs.3431.39 crore generating employment for about 14.10 lakh persons and catalysing investment amounting to about Rs.6696.93 crore. SANCTIONS: Receipt and Disposal of the Applications for Term Loans: At the beginning of the year 2005-2006, 12 applications for a total amount of Rs.80.31 crore were pending. During the year, no applications were considered for sanction and all the 12 applications were closed during the year. At the end of March 2006, no application was pending. Term Loans Sanctioned to Small Scale Sector: The Corporation has since its inception placed emphasized on the promoting Small Scale Industries. Of the total term loans sanctioned since inception till March-end 2006, Rs.2550.15 crore in 54832 cases accounting for over 74 per cent amount-wise and about 94 per cent number-wise respectively have been directed in favour of the Small Scale Industries. Term Loans Sanctioned in Backward and Developing Areas: The Corporation has since inception played very important role in the development of industries in the Backward and Developing areas of Maharashtra, Goa, Daman & Diu. Since inception upto March-end 2006, 21510 loans for Rs.951.17 crore have been sanctioned in Developed areas of Maharashtra while 19462 loans for Rs.1425.92 crore have been granted in Developing areas of Maharashtra. Loans amounting to Rs.772.53 crore in 14835 cases have been sanctioned in Backward areas in Maharashtra, Rs.209.14 crore in 2399 cases have been given in Goa while assistance provided in Daman & Diu amounted to Rs.72.62 crore in 366 cases. Industrywise Sanctions of Term Loans: The Corporation extends financial assistance to a wide range of industry groups including industries like Food, Textiles, Metal Products, Chemical & Chemical Products. Since inception upto March-end 2006, out of the total sanctions extended by the Corporation, the share of Metal products is 17.4 per cent while Chemical and Chemical Products account for 16.5 per cent of the total sanctions. The assistance to Food Manufacturing Industry amount to 7 per cent and the share of the Hotels was 8.7 per cent of the total sanctions. Regionwise Sanctions of Term Loans: Amongst the Regional Offices, in terms of the number of units assisted since inception till 31-03-2006, Mumbai-Konkan Thane Daman & Diu account for the highest number of cases (22513) followed by Nagpur (including Amravati) (8939), Kolhapur (6569), Aurangabad (6560), Pune (6254), Nashik (4189) and Goa (including Sindhudurg) (3548). In terms of loan amount sanctioned since inception upto March-end 2006, Mumbai-Konkan Thane Daman & Diu (Rs.1336.92 Cr.) is followed by Pune (Rs.453.97 Cr.), Nagpur (including Amravati) (Rs.407.03 Cr.), Nashik (Rs.375.23 Cr.), Aurangabad (344.22 Cr.), Kolhapur (Rs.287.54 Cr.), and Goa (including Sindhudurg) (Rs.226.49 Cr.). DISBURSEMENTS: The Corporation disbursed term loans of Rs.111.75 lakh during the year 2005-2006. By March-end 2006, the cumulative disbursements by the Corporation have reached a level of Rs.2743.79 crore, inclusive of term loans of Rs.2474.79 crore. Regionwise Disbursements of Term Loans: As regards Disbursements of Term Loans since inception upto March-end 2006, Mumbai-Konkan Thane Daman & Diu (Rs.963.46 Cr.) is followed by Pune (Rs.321.47 Cr.), Nagpur (including Amravati) (Rs.299.07 Cr.), Nashik (Rs.270.14 Cr.), Aurangabad (Rs.255.02 Cr.), Kolhapur (Rs.216.80 Cr.), and Goa (including Sindhudurg) (Rs.148.22 Cr.) RECOVERY: During the year under review the Corporation continued to concentrate on maximising the recovery of dues. The recovery, however, continued to be affected due to adverse conditions continued to be faced by the small scale units mainly due to increased competitions including competition from imported ancillary items. As part of the recovery efforts the Corporation also continued to provide opportunity to the defaulting units for One Time Settlement of the dues under the OTS (Negotiated Settlement) Scheme. However, in spite of maximising efforts on the recovery front, the recovery during the year amounted to Rs.76.00 crore as against recovery of Rs.88.00 crore during the previous year resulting in a decrease of Rs.12.00 crore (-13.64%). The amount in arrears at the beginning of the year was Rs.1231.38(1109.03) crore. During the year, amount of Rs.226.11(270.34) crore fell due for payment. The recovery effected during the year towards total demand of term loans was Rs.66.40 (79.45) crore comprising of Rs.20.30(131.07) crore out of current demand and Rs.46.10(48.33) crore out of arrears at the beginning of the year. Considering reschedulement of loans and amount written off/waived, the arrears at the end of the year were Rs.1277.47(1231.38) crore. The percentage of recovery out of current demand was 9(12.14) per cent and the percentage of total recovery to net total demand was 4.94(6.06) per cent. (Figures in brackets pertain to the previous year). Main Reasons for decline in recovery: Some of the main reasons which have been responsible for decline in the recovery over the year continued to affect the recovery during the year. Take over and Sale of Closed Units: The Corporation after having made due efforts to assist units facing difficulties including reschedulement and extending opportunities for One Time Settlement, as a last resort, takes recourse to take over and sale of such units or of willful defaulter, under Section 29 of the SFCs Act 1951, to ensure recovery of dues and recycling of funds. The units taken over are sold by following the standard procedure/guidelines laid down by the Board of Directors. The performance of the Corporation during the Financial year 2004-05 in Disposal of Units is given below: Particulars No. of units UNITS IN POSSESSION AS ON 31-03-2005 272 UNITS TAKEN OVER DURING 2004-2006 38 TOTAL UNITS IN POSSESSION DURING 2005-06 210 TOTAL UNITS DISPOSED OFF DURING 2005-06 43 TOTAL UNITS GIVEN BACK DURING 2005-06 21 TOTAL UNITS IN POSSESSION AS ON 31-03-2006 146 Against the total live accounts with the Corporation numbering 11555 as on 31-03-2006, the units in possession accounted for only about 1.3% of the total. Assets Classification of Loans Outstanding: The Corporation made concerted efforts to maintain and improve the Standard Assets of the Corporation. The percentage distribution of loans outstanding as on 31-03-2006 as per the Assets Classification indicate that about 5.04 per cent of the total outstanding pertains to the Standard Assets category. The details of loans outstanding as per Assets Classification as at 31-03- 2006 are as under: Classification of Assets as at % to total Outstanding 31-03-2006 Standard 5.04 Sub-Standard 2.64 Doubtful 49.82 Loss 42.50 TOTAL 100.00 Total live accounts as on 31-03-2006 are 11555.