In the period that followed, IFCI was able to make quick disbursements because the public issue had given it some leeway. But this process was helped in no small measure by the new administrative culture that the current chairman and managing director K D Agrawal initiated. He was able to streamline the internal decision making process so that proposals were attended to quickly and decisions were handed down promptly, be they yes or no.
Over the last few years IFCI has been able to maintain a phenomenal pace of disbursement, quite in contrast to ICICI, which has been severely hamstrung by a resource crunch. IDBI, for its part, has been straining under the impact of costly money. Last year IFCI's disbursements grew by 61 per cent, compared to 12.4 per cent for all the institutions put together. It also managed a spread of 5.4 per cent compared to ICICI's 2.9 and IDBI's 3.1.
But the biggest change in IFCI's image has come most recently, from the dramatically successful bond issue that it has just completed, raising a phenomenal Rs 1,500 crore or more (the final figures are yet to be announced), making the total takings nearly twice the original issue size. This happened at a time when a similar issue by another public institution, SCICI, managed to raise only Rs 500 crore.
Why did IFCI succeed when SCICI did not? It is agreed all round that IFCI marketed its issue superbly, with a panache quite alien to a government run institution. It used nearly 5,000 agents to market its issue and enthused them by offering commission at two standard rates of 90/100 paise per Rs 100 raised. Traditionally an established broker would get the 100 paise and then pass on parts of it to smaller and smaller agents who, at the bottom of the ladder, would make 10/15 paise per Rs 100 brought in. The new system enthused the small agents, with tremendous results.
Today IFCI foresees a smooth year with most of the fund raising behind it. It has budgeted a disbursal of Rs 6,800 crore, of which it has already tied up Rs 5,000 crore. Rs 2,600 crore had been raised by July. The just completed issue will net a minimum Rs 1,500 crore and a Euroissue of $300 million will bring in another Rs 1,000 crore. Thus this year also IFCI will be able to keep right ahead of the pack in its disbursal growth rate. In the first quarter, its disbursal went up by a phenomenal 75 per cent compared to the all institutions figure of 43 per cent.
While the last issue is a great feather in IFCI's cap, Mr Agrawal points to something else in answer to the question as to what he considers to be his greatest achievement. Over the last year the organisation has been able to raise a phenomenal amount, Rs 1,770 crore, through private placement of bonds. Till June this year, Rs 1,400 crore were raised. This has been possible not entirely through wholesale placement but through an elaborately developed countrywide network of agents who have effectively retail marketed the papers. IFCI is thus ahead of the pack in having put in place its own indigenous version of bonds on tap, which is the staple of investment banks abroad.
Such a dramatic turnaround in a dull and almost feckless institution does not come without controversy or questions. There have been many allegations about how IFCI has been cutting corners. It has been paying commission where none is allowed, raising shorter term CDs than is allowed for institutions, relying more than is healthy on CDs to fund longer term lending and has both inflated and deflated profits in such a manner that the bottomline is not reflective of the reality.
IFCI answers that it has not paid any commission where none is payable and it has not raised CDs for any period that it is not allowed to. Its costly borrowing is only the topping up, after most of the fund needs are met from internal cash generation, repayments and foreign loans. As for certain balance sheet items, they are all explained in the notes to accounts and are there for all to see and interpret according to their own perceptions.
One particular counter-argument by IFCI gives a clue to how its mind works. It says that while it has not issued any short-term CDs of under one year, it has raised short-term deposits of such maturity. When does a certificate of deposit become a deposit per se? The method of issuing CDs is fairly well regulated but when a salesman makes his calls and pulls out of his briefcase different kinds of products and paper, things can get a little confusing. A source counters thus: Whether you are law abiding or not depends on how big you are. When IDBI rings up its massive client base and asks for help to make its issue a success, no one blinks.
The private sector savvy which has come into IFCI has something to do with Mr Agrawal's own image. In manner, speech and understanding of business, he is far closer to the indigenous Indian businessman than the westernised management executive. The important thing about IFCI is not whether it has transgressed RBI regulations but that it is imbued with an aggression that stretches to the limit the scope of such regulations. When the finance ministry decided to privatise IFCI through the backdoor, it may not have bargained for this much.
As for Mr Agrawal, he is happy to churn out the figures that paint a glowing picture of IFCI. Its ability to maintain a fast clip in disbursals, ahead of the others, is giving it a growing market share of institutional lending, from less than 20 per cent to perhaps 30 per cent by the end of the year. In profit growth also, IFCI is ahead of the other two. The profit growth has been aided by the sharp decline in NPA, from around an earlier 25 per cent of assets to currently around 9 per cent. This is partly due to better followup. (When businessmen realised that we meant business, they paid up their arrears and regularised the loans.) Consequently, it has maintained a comfortable capital adequacy ratio.
NPA, resources, market share and image problems have been tackled, simultaneously staff morale has been greatly improved. As a result, it has been able to recruit better managerial talent. All this has enabled the organisation to plan a journey to a qualitatively higher level. It has commissioned Arthur Anderson who have recommended that it get into commercial banking, insurance, merchant banking, brokerage, asset management and the like to transform it into a full-fledged financial services conglomerate. It already has the membership of the NSE and some other stock exchanges, has a small merchant banking unit that will be spun off into a separate concern and is looking for a foreign partner to go into insurance. So it is getting ready to do all the things that ICICI and IDBI have already done or have lined up.
