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Infrastructure Development Finance Corporation: The Controlling Battles



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Code : GOV0012

Year :
2004

Industry : Banking, Insurance and Financial Services

Region : India

Teaching Note:Not Available

Structured Assignment :Not Available

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Evolution of IDFC The progress of infrastructure development in a country was dependent on the availability of long-term cheap source of finance. Southeast Asian countries were able to make rapid progress in the 1970s and 1980s with their ability to leverage financial strength of banks to invest in infrastructure projects. They designed certain products, which critics felt were repressive in nature as they forced banks to lend funds for projects at cheaper rates of interest. However, the Indian initiative was to set up separate vehicles for developmental financing activities...

The Controlling Battles In line with it’s decision to invest Rs. 50,000 crore in infrastructure development, the Government of India was on the look out for a vehicle to channelize these funds to relevant projects. According to published reports, Industrial Development Bank of India (IDBI), which had been a key institution, overseeing the infrastructure financing, was struggling with its huge pile of NPAs and lack of cheap funds to support infrastructure financing. IDFC with zero NPAs and project appraisal skills was the best alternative for the Government. On the other hand, the Government was unhappy with IDFC’s lackluster performance...

Whither IDFC? The IDFC’s management was of the view that government failed to acknowledge and appreciate the good work it had done in the commercialization of infrastructure. While accusations were flying, the government was serious about going forward with its plans, particularly since it made promises in the interim budget and involved the infrastructure sector. “Let us not deviate from the main issue of developing infrastructure projects and infrastructure financing. Everybody is concerned about the fact that right policy framework is yet to be ready. Let us try to find a way out. Let IDFC be taken care of by its shareholders” stated P Krishnamurthy, vice-chairman, JM Morgan Stanley. “Restructuring is important, but this should reflect shareholders’ interest and, interests of all other concerned parties should also be taken care of,” said Dr. Yaga Venugopal Reddy, Governor, RBI...

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