The Industrial Finance Corporation of India (IFCI)

ViJiT

Vijith Pujari
GENESIS OF IFCI

At the time of independence in 1947, India’s capital market was relatively under-developed. Although there was significant demand for new capital, there was a dearth of providers. Merchant bankers and underwriting firms were almost non-existent. And commercial banks were not equipped to provide long-term industrial finance in any significant manner.

It is against this backdrop that the government established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as the first Development Financial Institution in the country to cater to the long-term finance needs of the industrial sector. The newly-established DFI was provided access to low-cost funds through the central bank’s Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and advances to corporate borrowers at concessional rates.


LIBERALISATION - CONVERSION INTO COMPANY IN 1993

This arrangement continued until the early 1990s when it was recognized that there was need for greater flexibility to respond to the changing financial system. It was also felt that IFCI should directly access the capital markets for its funds needs. It is with this objective that the constitution of IFCI was changed in 1993 from a statutory corporation to a company under the Indian Companies Act, 1956. Subsequently, the name of the company was also changed to "IFCI Limited" with effect from October 1999.


FOCUS

IFCI has fulfilled its original mandate as a DFI by providing long-term financial support to all segments of Indian Industry. It has also been chiefly instrumental in translating the Government’s development priorities into reality. Until the establishment of ICICI in 1956 and IDBI in 1964, IFCI remained solely responsible for implementation of the government’s industrial policy initiatives. Its contribution to the modernization of Indian industry, export promotion, import substitution, entrepreneurship development, pollution control, energy conservation and generation of both direct and indirect employment is noteworthy. Some sectors that have directly benefited from IFCI’s disbursals include:
Consumer goods industry (textiles, paper, sugar);
Service industries (hotels, hospitals);
Basic industries (iron & steel, fertilizers, basic chemicals, cement);
Capital & intermediate goods industries (electronics, synthetic fibers, synthetic plastics, miscellaneous chemicals); and
Infrastructure (power generation, telecom services).


IFCI's ECONOMIC CONTRIBUTION

IFCI’s economic contribution can be measured from the following: -
Cumulatively, IFCI has sanctioned financial assistance of Rs 462 billion to 5707 concerns and disbursed Rs 444 billion since inception.
In the process, IFCI has catalysed investments worth Rs 2,526 billion in the industrial and infrastructure sectors.
By way of illustration, IFCI’s assistance has been helped create production capacities of:
6.5 million spindles in the textile industry
7.2 million tons per annum (tpa) of sugar production
1.7 million tpa of paper and paper products
18.5 million tons tpa of fertilizers
59.3 million tpa of cement
30.2 million tpa of iron and steel
32.8 million tpa of petroleum refining
14,953 MW of electricity
22,106 hotel rooms
5,544 hospital beds
8 port projects, 66 telecom projects and 1 bridge project.
The direct employment generated as a result of its financial assistance is estimated at almost 1 million persons.
IFCI has played a pivotal role in the regional dispersal of industry -- 47% of IFCI’s assistance has gone to 2,172 units located in backward areas, helping to catalyse investments worth over Rs1,206 billion.
IFCI’s contribution to the Government exchequer by way of taxes paid is estimated at Rs9 billion.
IFCI has played a key role in the development of cooperatives in the sugar and textile sectors, besides acting as a nodal agency in both sectors. 371 cooperative societies in these sectors have been assisted by IFCI.
IFCI has promoted Technical Consultancy Organizations (TCOs), primarily in less developed states to provide necessary services to the promoters of small- and medium-sized industries in collaboration with other banks and institutions.
IFCI has also provided assistance to self-employed youth and women entrepreneurs under its Benevolent Reserve Fund (BRF) and the Interest Differential Fund (IDF).
IFCI has founded and developed prominent institutions like:
Management Development Institute (MDI) for management training and development
ICRA for credit assessment rating
Tourism Finance Corporation of India (TFCI) for promotion of the hotel and tourism industry
Institute of Labor Development (ILD) for rehabilitation and training of displaced and retrenched labor force
Rashtriya Gramin Vikas Nidhi (RGVN) for promoting, supporting and developing voluntary agencies engaged in uplifting rural and urban poor in east and northeast India.
IFCI, along with other institutions, has also promoted:
Stock Holding Corporation of India Ltd. (SHCIL)
Discount and Finance House of India Ltd. (DFHI)
National Stock Exchange (NSE)
OTCEI
Securities Trading Corporation of India (STCI)
LIC Housing Finance Ltd.
GIC Grih Vitta Ltd., and
Bio-tech Consortium Ltd. (BCL).
IFCI has also set up Chairs in reputed educational/ management institutions and universities. A major contribution of IFCI has been in the early assistance provided by it to some of today’s leading Indian entrepreneurs who may not have been able to start their enterprises or expand without the initial support from IFCI.

CORPORATE STRATEGY

In line with the recommendations of McKinsey & Co, IFCI is moving towards segregating its Non-Performing Assets with the ultimate objective of hiving these off to an Asset Reconstruction Company.

Meanwhile, the focus is being re-oriented to further strengthen the quality of the existing portfolio while also gradually evolving a new business paradigm:

To cater to the needs of small and medium enterprises (SMEs), thereby serving as a mid-corporate specialist with particular focus on:
Asset financing
IPO management
Loan syndication
Project finance
Receivables financing
Mergers and acquisitions
Corporate & project advisory services
To strategically manage non-performing assets with the objective of resolving these as speedily as possible through the aegis of the newly-formed Assets Reconstruction Company, ACE Ltd.
To form Strategic Partnerships with domestic and international players of repute -- both in respect of the restructured IFCI and the ARC.
 
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