What is the role of our developmental FIs in the liberalised economic environment?
Developmental financial institutions were originally conceived as providers of term finance to industry when long-term funds were difficult to come by. Deregulation of interest rates, emergence of a liberalised capital market and increasing participation of banks in term financing have significantly impacted the operations of developmental FIs. With FIs, in turn, making forays into the realm of short-term working capital loans, the traditional divide in the operational domain of FIs and banks is getting blurred.

One of the significant impact of this is FIs' loss of privileged access to assured sources of low-cost long-term funds from the RBI and the Government. Also impacted was FIs' main area of operations, namely project financing, which was thrown open to other players in the system, including banks.

FIs faced up to this challenge by diversifying their operations, achieving an expansion in their client base, by introducing new financial products and services and emerging as financial supermarkets.

In the future too, FIs will continue to diversify in a bid to provide total financial solutions to their clients. FIs would continue to leverage their brand and expertise to exploit the emerging growth opportunities. They would also enlarge assistance to the fast-growing new economy segments.

Will the FIs continue to offer their services as development banks?
The rationale behind the establishment of DFIs during the late fifties and early sixties was non-availability of term finance as well as an almost non-existent capital market. DFIs have played their assigned roles of catering to the needs of growing industries well now for over 30 years.

Prior to economic liberalisation, FIs had access to low-cost funds from RBI and the government of India. This enabled the FIs to extend loans at concessional rates of interest. This situation underwent a change as financial sector was deregulated in 1991 and it became necessary for the FIs to raise funds from the market. Concessional funding from the government and the RBI and through SLR Bonds was gradually phased out.

With concessional funds no longer available, providing loans at concessional rates became commercially unviable. In this sense, the development banking role of FIs has been considerably eroded. Accordingly, FIs have diversified their product range to suit varied needs of their corporate clients as against plain vanilla products such as long-term project finance.

With gradual disintermediation and decontrol, industries are now having diverse options for raising long-term resources including the primary capital market. At the same time, commercial banks have been allowed entry into term-lending. Given the banks' natural cost advantage, it is imperative for FIs to counter their challenge on a non-price front by introducing new products.

However, FIs are still providing assistance to industries according to the government's plan priorities and thus the infrastructure sector constitutes a major part of FI sanctions today. Thus, FIs’ perspective of arranging the required finance for the Indian industry remains unchanged, though the focus has shifted from development financing to financing of development.

How are the FIs planning to counter the threat of rising non-performing assets?
FIs have taken up a time-bound programme for containment of NPAs with emphasis on identifying potential NPAs and taking up immediate measures for their turnaround by way of financial and business restructuring. Willful defaulters are being strongly dealt with. This includes reporting to the RBI, besides taking up the matter with the defaulters' working capital bankers.

Are the lending policies of FIs changing?
RBI policy initiatives have been slowly blurring the distinction between commercial banks and developmental FIs, leading them to compete with each other.

For instance, when infrastructure financing was opened for private funding, IDBI took the policy initiative to make infrastructure bankable. While project financing would remain the key segment in fund-based business, IDBI would also target well-rated corporates for assistance under non-project finance schemes and in the form of structured products.

FIs have thus changed their business mix in line with the changing needs of the Indian corporate sector by offering a variety of financial products.

With interest rates falling and FI spreads coming under pressure, isn't it necessary for them to focus on fee-based services?
Although our major activities and sources of income have remained fund-based until now, fee-based activities are one of our fastest growing business areas. Fee-based income will be one of the major segments in the coming days.

For instance, in order to enhance skills in the area of merchant banking and corporate advisory services, IDBI is considering to forge a technical tie-up with a reputed firm.

IDBI plans to increase its fee-based activities substantially. For, internally there is a wave of corporate restructuring, there is this large PSU disinvestment programme and innovative financing. On the external front, Indian corporates are venturing abroad, while more foreign firms are entering India.

These trends are reinforcing the demand for merchant banking and forex services. With mergers and acquisitions gaining prominence as vehicles for restructuring, existing businesses can exploit economies of scope in core-competence areas and consolidate themselves to stand up to the challenges posed by global integration. So, IDBI would explore business potential in the area of financing M&As, along with takeover financing.

Apart from providing finance, IDBI would also explore opportunities for fee-based income from appraisal of and credit syndication for M&As and takeovers. Here, our relationship and familiarity with the Indian corporate world would be an advantage. Disinvestment programme mandates would be another potential area for fee-based services.

What are IDBI's plans in e-commerce?
In order to take advantage of the emerging opportunities in the information technology sector, IDBI has promoted a separate company, IDBI Infotech Limited, with an authorised capital of Rs 100 crore. The objective of setting up this IT subsidiary is to exploit the potential of IT to provide significant value to IDBI's current business by expanding IDBI's range of products and services, by improving utilisation of IT resources across the IDBI Group and by enabling IDBI's customers to use different technologies and access channels such as Internet.

IDBI will also create and enhance shareholders' value by developing strategic business focus in the IT industry. Initially, the company would undertake activities in the areas of e-commerce, portals, shared services and IT services. It will also explore the possibility of entering into a joint venture with an international firm to offer IT- related financial services. IDBI has also set up a dedicated venture capital fund with a corpus of Rs 50 crore for IT and other knowledge-based industries.

How does IDBI propose to exploit the emerging growth opportunities?
IDBI is gearing itself up as India's premier financial institution by providing a full suite of financial services through an integrated group structure. We would expand to an international presence. Future focus would be on high value and high skill products and services.

While infrastructure would continue to be the key driver, IDBI would also focus on high growth knowledge-based industries. Fee-based income will be one of the major segments in the coming days.

In order to enhance our skills in merchant banking and corporate advisory services, a technical tie-up with a reputed foreign firm is under consideration. Structured products and total financial solutions would soon be introduced.

Cross-border financing would be a new area where IDBI would leverage its experience in project financing into project exports. It would also establish a meaningful presence in the international markets. Restructuring and consolidation are expected to gather momentum and so take-over financing would be attractive business proposition for us.

IDBI has been a leader in branded debt in the countr and our cost-effective resource mobilisation efforts have been the hallmark of business strategy. We propose to lay more emphasis on retail funding by tapping new market segments, by designing innovative instruments and by strengthening our network. Secondly, it is envisaged to match funding to asset-creation. With the access to repo or the reverse repo market, now provided by RBI, it would be possible to manage short-term liquidity more efficiently.