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Development finance institutions are searching for a role in the vast field of infrastructure. This does seem odd at first sight. Infrastructure development will require massive funding, more than what can be provided by the existing term lending institutions: IDBI, IFCI and ICICI. This is the reason why the Infrastructure Development Finance Company (IDFC) has been set up. But judging by available reports, IDFC is viewed as a threat by the existing term lending institutions. Especially IDBI and ICICI have aggressively raised bond finance for infrastructure, taking advantage of tax relief to the bond buyer. These two rightly view infrastructure as the major growth area for their business. They want a piece of the action now that lending to industry has plateaued. The lingering industrial recession has also forced them to cap their lending to each industry sector.
But IDFC is hardly likely to pre-empt their business. It will not have enough funds to keep the term lending institutions out of infrastructurelending. Logically, IDFC should play the lead role in arranging consortium finance for infrastructure, earmarking how much each of the term lenders should fund. This is clearly unacceptable to the term lending institutions.Infrastructure spans a vast area:power generation and distribution, telecom, roads, ports, etc. The traditional term lenders have experience of lending to power companies and, of late, to the telecom sector. Both are industries and what is more important have a predictable medium-to-short gestation period. This is not the case with other segments of infrastructure. Besides, roads, for example, have yet to become a commercial proposition; they are still viewed as a free public good. IDBI or ICICI can hardly be faulted for sticking to the commercial track. This is where they can assess commercial risk. Under Reserve Bank mediation, IDFC has been reportedly kept out of power and telecom. This is the essence of the informal arrangement under which IDBI will take the policy initiatives inpower and ICICI in telecom.
Thus has a possible clash of Titans been averted by keeping IDFC at bay. But what if the 15 per cent cap on lending to to an industry (power) comes in the way of IDBI lending? Will it then invite ICICI to lend in a consortium? Will the latter accept IDBI's policy initiatives? The problem could arise in telecom too. IDFC, IDBI, ICICI and IFCI have access to vast funds. They must act in concert to accelerate investment in infrastructure. This, in the current recessionary phase, for example, would be a good counter-cyclical measure. The Titans have a much bigger role in the economy than they perceive. Petty bickering deprives them of a vision.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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