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IFCI: Turning Around an Ailing Financial Institution

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By 2004, the Industrial Finance Corporation of India (“IFCI”) is on the verge of collapse; its profitability has become negative. Non-performing assets (“NPAs”) have reached their peak, and the company does not have enough money to do business. It begins selling off and renting out its premises to get money to sustain its operations, going door-to-door to save itself. Employee morale is at its lowest level. IFCI's operations become unsustainable and are no longer viable.

Against this backdrop, the IFCI board of directors and the government of India are in a quandary as they try to decide on IFCI's future course. After evaluating all possible options, IFCI and the government decide to restructure IFCI. IFCI's turnaround, which catapults it on the path to growth includes multiple factors such as converting debt into equity, creating provisions for bad loans, restructuring liabilities, retiring high-cost debt, managing NPAs aggressively, voluntarily retiring staff, focusing on short-term projects, adopting a selective approach in identifying projects for assistance and monitoring projects more effectively. The most critical factor that enables the turnaround of the state financial institution is the able leadership that not only changes IFCI's public sector culture but also brings a new work culture and ethics to the organization. ICFI's turnaround from the financial crisis inspires a lasting motivation in the hearts of its employees.

Learning Objective:

1.To understand and appreciate the need to restructure a company moving towards collapse.
2.To understand and evaluate the various options of restructuring.
3.To understand the process of evaluating options available for the financial institution and how they are different from that of other companies.
4.To understand the process of financial and organizational restructuring of a state-owned financial institution and how it is different from restructuring a non-financial, non-governmental company.
5.To understand what strategies may turn a company around.

Year of Publication: 2014
Ref. No.: 14/543C
Discipline: Accounting & Control, Finance & Investments, Strategy & General Management
Industry: Banks & Diversified Financials
Country: India
Company: Industrial Finance Corporation of India (IFCI)
Languages: English
Pages of Text: 22