FI flashback

LIC dons mantle of development finance institution once again

For proof that the era of financial institutions is a thing of the past, if indeed proof were needed, turn to the RBI bulletin for March.

Disbursements between April and December 2003 by what the RBI calls all-India investment institutions "" the likes of LIC, GIC, and the other insurance companies"" amounted to Rs 10,101 crore, more than the Rs 9,380 crore disbursed by the all-India development banks, that is by IDBI, SIDBI, IDFC, IIBI and IFCI. LIC is taking over the mantle of the development finance institutions, having disbursed Rs 9,115 crore over the period, compared with IDBI's Rs 3,351 crore and SIDBI's Rs 2,548 crore.

Higher disbursements by the all-India investment institutions are a marked change from the traditional pattern, where the development finance institutions were the biggest lenders.

For example, in FY 2002, disbursements by the development finance institutions amounted to Rs 20,728 crore, more than twice the amount disbursed by the so-called all-India investment institutions. In FY 2003, the all-India development banks disbursed Rs 13,443 crore, compared with Rs 7,470 crore by the insurance companies. LIC's disbursements were lower than Sidbi's. So it's a big change in trend that has happened this year.

So far, however, the development banks continue to sanction more loans than the investment institutions, but they're only just managing to hold on to their lead. During April to December 2003, the development banks sanctioned Rs 15,989 crore, compared to Rs 15,653 crore by the insurance companies.

LIC was by far the outperformer, sanctioning Rs 14,716 crore, with Sidbi coming a distant second with sanctions of Rs 5,776 crore. But both disbursements and sanctions by LIC are growing much faster than those by the development banks.

The good news is that, compared with April-December 2002, total disbursements( by the development banks as well as by the insurance companies) have gone up from Rs 11,426 crore to Rs 19,482 crore during April-December 2003, and sanctions too have gone up almost two and half times. That's a signal that investment is picking up.

AIDS drugs & pharma firms

The Bill Clinton Foundation has extended its program to provide cheap generic AIDS drugs to the whole of the developing world. Indian pharmaceutical companies would be the immediate beneficiaries, since Ranbaxy Laboratories, Cipla, Matrix Labs and Hetero Drugs are among the five companies chosen for this task. The moot question is "" how much would Indian companies gain from this deal ?

Indian pharmaceutical companies have grabbed the global spotlight in the fight against AIDS due to their ability to supply medicines at the lowest cost "" cost to a patient through this initiative is pegged at about $0.38 a day as compared to MNC products with costs pegged at around $6 per day. This initiative involves Global Fund "" a public-private partnership funding body, the World Bank and the United Nations' Children's Fund. The foundation plans to target around 2 million people in the first year, which would result in a budget of approximately $300 million.

Analysts point out the gains accruing to Ranbaxy through this deal may not be that much "" its exports base in CY 2003 was approximately $1 billion. However, this initiative could help to aggressively ramp up the turnover of companies like Cipla and Matrix Labs. Cipla is expected to gain the most according to analysts, as the company manufactures all the 12 products of anti-AIDS compounds.

Margins accruing to Indian pharmaceutical companies however, are very slim "" Cipla had bid for such a deal in 2001 with Medecin Sans Frontieres, at a price of around $1 per day. Further, the company had said at the time that they would break even at that price. Analysts opine that large volumes expected from this deal should compensate for the wafer thin margins.

The earlier initiative of Clinton Foundation had been announced on October 26, 2003, and the bourses were not too enthusiastic about the deal "" Cipla rose around 3 per cent within 10 days of this announcement, while Ranbaxy gained around 7. 5 per cent and Matrix Labs appreciated 5.5 per cent.

The Bombay Stock Exchange Sensex, meanwhile, appreciated around 7.5 per cent during this period. Analysts point out that this deal nevertheless, puts increasing pressure on multinational pharma companies to lower their prices.

With contributions from Amriteshwar Mathur