IFCI panel for bringing strategic partner

"Such a transition would be sweeping one for IFCI and to facilitate this transition, it might be best to seek a strategic partnership with another institution in similar business," the committee headed by former State Bank of India chairman D Basu said.

The committee has suggested setting up of a dedicated recovery unit immediately at the head office which should be headed by an officer of the level of executive director reporting directly to the chairman and managing director. The committee pointed out that the current IFCI structure does not provide any dedicated efforts to handle recovery.

IFCI has also been advised to set up active treasury operations to improve profitability.

The committee was of the view that association with institutions like IFC, Washington (IFCW) or Asian Development Bank (ADB) as an equity holder would not only improve its image and standing but also make it attractive for other entities to consider strategic investment even at a minority level.

Both IFC(W) and ADB have have wide ranging experience in project finance across countries and would, therefore, be appropriate strategic partner for IFCI, the committee stated.

Elaborating on the strategic partner, the committee said: "such partner should be financially strong, and with demonstrated skills in corporate and project finance, investment banking and advisory business and having a strong business-oriented culture."

Stating that the financial institution should change itself to a term credit bank, the committee said that it should specialise in project finance and at the same time having the capability for providing a full range of banking services to their clients including investment banking and advisory services.

In order to minimise risk, it also suggested the FI to increase its share of financing brownfield projects which included expansion of capacity as well as modernisation at existing locations of established companies with good track record.

IFCI should consider building up a portfolio of selected highly-rated corporate bonds with appropriate maturities. Such a portfolio (comprising bonds rated AAA, AA+ and to a limited extent AA) even though yielding finer spreads can provide relatively high-quality assets and can be funded partly by short term loans.

As a long term measure, the committee suggested adoption of a new corporate culture. "Despite corporatisation in 1993, changes in its shareholding pattern and induction of non-government directors in its boards, the organisation still functions more or less as a government owned entity."

Stressing upon the need to revamp human resource development system, the committee said that IFCI activities could be carried out with 15-20 per cent of fewer people than the present strength.