IFCI Pushes for DFI Status to Lower Its Cost of Funds
Co to submit a proposal to this effect to govt, wants a chunk of its bonds classified as SLR
State-owned IFCI, a lender which has fallen into bad times in the past few years due to rapid changes in the financial world, is seeking to become a development financial institution (DFI) as it would lower its cost of funds. The company will place a proposal with the government seeking the tag of a ‘developmental financial institution’, which could raise its credit rating and make its securities attractive to investors. “Cost of funds will get drastically reduced if it is a DFI,” Malay Mukherjee, CEO and MD of IFCI, told ET in an interview. For the country, it would be turning the clock back nearly two decades after it dumped the model in the 1990s to move to universal commercial banking model with the Industrial Credit and Investment Corporation of India taking the lead to become ICICI Bank. Industrial Development Bank of India is now IDBI Bank. In 1960s, the government created four institutions with DFIs status – IDBI, ICICI, IFCI and IIBI where they could raise cheaper resources by selling bonds that were guaranteed by the Union government. The lender is already turning around its fortunes with a net profit of .` 508 crore in the last fiscal year. It also raised about .` 300 crore in a tax-free bond sale. This year, it is seeking to raise about .` 2,000 crore through same securities if the government permits. Unlike its peers ICICI and IDBI, IFCI continued with its lending with funding from the wholesale market, but shrank its size as more competitive banks were taking its clients away. Currently, it has an asset book (loan and investment) size of .` 28,000 crore comprising infras-
If the DFI model does not see the light of day, IFCI will stick with its NBFC model
tructure loans, loans to promoters against pledged shares and to builders. “We plan to increase it to .` 40,000 crore this fiscal year,” said Mukherjee. The company has also proposed that a portion of the bonds issued by IFCI should be classified as SLR bonds – a status equivalent to government bonds. Banks are mandated to invest 23% of the deposits in such bonds. As of now, no security other than central government paper is classi- Getting Back In Shape?
already turning around its fortunes with a net profit of
crore last fiscal crore in a tax-free bond sale fied as an SLR paper. Since there is a demand for these bonds, the borrowing costs are lower. If DFI model does not come though, IFCI will continue with the NBFC model. “We have to be careful in choosing customers. We have to take risk mitigation steps since ‘A’ rated clients don’t come to us. So, we have to be more careful about the promoters, cash flows and security.”