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MUMBAI, Sept. 30

ERNST & Young had been appointed the internal auditors of Tata Finance Ltd (TFL), its Chairman, Mr Ishaat Hussain, said at the company's AGM here today.

Explaining this, a company official later told Business Line that Ernst & Young did not replace anyone; the company's existing internal audit team would continue, with the new appointee overseeing the process. All resolutions were passed at the AGM.

The company, currently battling its way out of crisis, was close to finalising the sale of its cards business, Mr Hussain said. No further details were disclosed.

According to the 2001-2002 annual report, as of March 31, 2002, its credit cards division had 67,500 card members, up from 24,700 members of June 30, 2001. `SmartFleet', a co-branded smart chip-based card with Bharat Petroleum, is the other product of the division.

"The company is negotiating for the sale of this division, in view of the substantial resources that need to be invested to expand the division to an economical size,'' the report said.

Replying to shareholders' queries, Mr Hussain said that Tata Finance targeted to achieve capital adequacy by March 2003. He outlined the company's return to core competence as basically a revived focus on auto financing.

The company, originally set up to finance the sale of trucks from Tata Engineering, had lost the race in the car financing business, needing much investment afresh if it were to catch up, he conceded.

But it enjoyed adequate returns in the truck finance business and had so far done well in its foray into two-wheeler financing. Homing in on core competence was a correction from the days of aspiring to be a virtual universal bank and acknowledged the reality of Tata Finance's cost of capital being 12 per cent while that of commercial banks was far less.

Mr Hussain who read out a media statement of August 8, 2002, from A.F. Ferguson on its internal inquiry following the controversy generated by the report on TFL, said, "There has been no desire on our part to hide the report.''

On the route ahead for the beleaguered finance company, he said, "I can't afford to be a visionary at this stage.'' But he defended most steps taken so far, starting with the letter of support from Tata Sons Ltd which ensured there was no run on TFL and TSL's cash infusion that comforted depositors and FIs.

On whether another round of similar infusion would be required for capital adequacy by March 2003, he said, "If necessary, we should bring in more capital and we are committed to doing that.'' Referring to TFL's investment portfolio, which attracted criticism from shareholders, he said, "It is very clear that we will not be investing anywhere. That is not the role of TFL in my opinion.''

Notwithstanding Mr Hussain's descriptionof the shareholders' meeting being the management's real "parliament'', most investors who spoke at the modestly attended AGM voiced their grief at the company's decline. One of them, a chartered accountant who claimed to have worked with A.F. Ferguson, listed several concerns.

Among them - the need for complete provisioning against TFL's investment in erstwhile subsidiary Nishkalp Investments; the implication of a letter of support reportedly given to Nishkalp; the sharp mismatch between investment income and interest pay-out not to mention the erosion in investment value itself; the fact that Tata companies accounted for a sizeable chunk of those investments and why no action had been initiated against the company's auditors who should have detected the management misconduct.

Another shareholder styled his address on the lines of a funeral comparing the flowers on the dais to those on a coffin. "This company's balance sheet does not need analysis, it needs a post-mortem. The best way out is to wind up Tata Finance or merge it with another company,'' he said.

Recalling the remark, Mr Hussain said towards the close of the AGM that the shareholder had left "putting the nail in our coffin. May be, we will be here again next year.''

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