The rights offering is at a marginal discount to the current market price of the IFCI stock at Rs 11.10 on the Mumbai Stock Exchange. Although the price does not appear too attractive, the shareholders can take solace in the fact that IFCI is in the process of cleaning up its books. It has also lined up a three-pronged strategy to shore up its bottomline in the years to come. The measures include limiting fresh exposures (to a certain ceiling) in a single project, lending to promising industries as well as extending short-term loans.

Besides providing for doubtful assets, the Delhi-based institution is also changing its accounting policies as part of the clean-up exercise, even at the cost of profits. For instance, in the first-half of FY 2000, IFCI has not recognised income (on accrual basis) in respect of non-performing assets till the date of their becoming non-performing. While this change in IFCI's accounting policy impacted the first-half net profit to an extent of Rs 39.4 crore, it shows a willingness to change for the better.

Meanwhile, IFCI plans to replace its high-cost funds with cheaper resources in cognisance of its new thrust on providing short-term products like working capital to corporates. ``The incremental shift to products other than project finance has been necessitated by resource constraints on companies as well as increasing competition,'' says an analyst. Moreover, the institution is reported to be on an aggressive recovery drive. However, whether IFCI will be able to take the bull by its horns remains to be seen.Nevertheless, doubts still persist over the response to IFCI's rights issue from retail investors. Says a market source, ``Even if the issue does sail through, IFCI is in no position to service the expanded equity.''

Post-rights, IFCI's equity will bloat to over Rs 700 crore. Further, the issue comes in the wake of a dismal financial performance during 1998-99. Net profit dropped to Rs 25 crore from Rs 370 crore in 1997-98. NPA stood at Rs 2,000 crore, taking the total NPAs to Rs 4,000 crore - almost 20 per cent of the total business assets.

In the first-half of fiscal 2000, IFCI's net profit fell by over 30 per cent to Rs 46.9 crore as against Rs 68.3 crore in the corresponding period last year. Income from operations during the period fell to Rs 1,459.5 crore as against Rs 1,465.5 crore in the corresponding period last year. Although net profit in the second quarter of the current financial year was better at Rs 16.63 crore, up from Rs 4.12 crore last year, this was mainly on account of a lower provision for bad and doubtful debts during the period (at Rs 32.5 crore as against Rs 110 crore in the corresponding period last year).