The claim of the Corporation about its recovery percentage could not be authenticated from the systems and procedures followed to raise the current and old overdues in the form of principal and interest separately.In
the absence of proper accounting procedures, the Commission is unable to judge their performance in regard to recoveries.
Critical Analysis Corporate Focus
The earlier focus of the Corporation was on the traditional occupations of members of Backward and minority classes which are losing their economic viability on account of better quality substitutes at cheaper rates.Thus, it would be inadvisable to go on financing ventures in the sector of the traditional occupations without examining the shift in professions.Therefore, BACKFINCO should redefine its focus by identifying the shift taking place in the occupational pattern of the Backward Communities and devise training programmes and establish the requisite facilities for implementing these training programmes through a tie-up with the existing training infrastructure, and where it already does not exist, by establishing the necessary training facility through oral education and
practical training and to act as a philosopher, guide and friend to the members of the Backward Communities to start economic ventures.
Strengths/ Core Competency / Opportunities
The Corporation has gained experience at the field level to implement the loaning schemes for weaker section of the community and tried to introduce electronic data maintenance to improve its recovery and expedite its loaning operations.Still, it lacks the professional competency at all levels in the proper identification of beneficiaries, loan appraisal and quick disposal in sanctioning /disbursement of loans, etc. The recovery of the
loans extended to these economic ventures by the Corporation is very low, thereby indicating mostly the wrong selection of the beneficiaries and / or the non-viability of these assisted economic ventures due to
competition posed in respect of the quality / costs / durability of the products marketed by the medium / large / multi-national companies. Most of the economic ventures initiated by the members of the backward
communities suffered, generally due to lack of education and training before getting these ventures financed from the Corporation.Some times, these loanees eat up their assets on account of social compulsions and some times close the units due to lack of adequate working capital.
The cost of delivery of loans and its recovery is excessively high as compared to commercial banks / other financial institutions on account of ever increasing overhead charges and reducing volume of loans advanced by the Corporation. The Corporation is sustaining mainly on the basis the funds provided by the NBCFDC & NMDFDC at the moment but it has not given serious attention to the recovery of loans for refinancing new projects.
In order to sustain the activities of the Corporation by reducing overhead costs within a reasonable limit, it is necessary to enhance the overall loaning operations / recovery operations.This is possible by creating a synergy in the operation of the Corporation by merging it with PSCFC, as both are having similar social objectives and mode of operations.This will bring about the pooling of their financial and managerial resources, thereby, acquiring a stronger base, reduction in the overhead costs and better utilization of the personnel of the new entity.There would not be much difficulty if only one Corporation looks after the economic interest of both these communities.
During the course of time, this new entity may be better able to raise commercial borrowings and bonds at lower cost and generate its own funds.The new entity would be able to sharply focus on the processes and procedures to be followed to keep NPAs under control and would also be able to concentrate on the suitable credit delivery system for the well identified target group over a specified period of time to ensure proper end use of the funds made available to the members of these communities, click.
The performance of the new entity should be got evaluated from an independent agency through post utilization survey of the credit extended to the members of these communities.
The Commission,therefore, recommends that:
1.BACKFINCO and PSCFC should be merged to form a new Corporation, namely “ Punjab State Scheduled Castes & Backward Classes Finance Corporation”.
2.The new Corporation will be able to leverage its pooled financial resources and utilize its managerial resources optimally.This way, a sizable reduction in cost and the strong financial base would help it to become self sustainable by devising its processes and procedures to sanction / disburse loans keeping in view the repaying
capacity of the beneficiary which is dependent upon the viability of the promoted economic venture.
3.The new Corporation should disburse loans to the beneficiaries after ascertaining the need of training required to make the venture successful.
4.The redundancies on account of merger have to be identified and accordingly they have to be re-deployed after training or provided with suitable VRS and retrenchment compensation package.The entire liability of the Corporation on account of VRS/retrenchment has to be taken care of by the State.Other assets and liabilities of the Corporation will be taken over by the new entity by following due process.