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

The Economic Times - - Markets & Finance - SAN­GITA ME­HTA

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.”

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