India’s first public sector financial institution IFCI does not want to become a bank any more. It is keen to don the mantle of development financial institution (DFI). IFCI CMD Malay Mukherjee has a reason for the change in approach.
“We will not do ourselves a benefit through becoming a bank. Instead it serves IFCI rather well if we can go back to become a DFI.”
The Rs 30,000-crore-turnover institution will have to expand massively by over-leveraging itself and sequester funds for priority sector lending if it were to get a bank licence. Instead if it went back to its roots as a DFI it will be happily borrowing funds at lower cost and deploy those in long-term projects — something which it knows it can keep doing.
The only snag is that DFI as a concept has become obsolete in the Indian financial sector. The RBI does not recognise any such entity. IFCI’s contemporaries IDBI and ICICI have transformed into banks. The RBI would offer Mukherjee only two options, were he to approach them. Become a bank or an NBFC.
But Mukherjee is sure, none of those two roles suit IFCI well. The Delhi-based financial institution now borrows at above 10 per cent from banks and lends to infrastructure project companies at 11 per cent and above. But if it became a DFI, he could then approach foreign institutions like ADB and IFC to access loans at close to LIBOR and provide soft-term loans to infra companies.
Currently, IFCI gets a sovereign guarantee for each borrowing done abroad which Mukherjee says is time consuming and costly. The RBI, however, thinks there are easier ways to access such short-term funds like bank consortium borrowing.
Mukherjee is, however, clear the IFCI business model suits well with a DFI status. Former finance minister P Chidambaram had given an in-principle nod to IFCI to begin work on it.