IDFC will now have to learn to do business with the aam aadmi

MUMBAI: Infrastructure Development Finance Company ( IDFC) was floated in 1997 to fund infrastructure projects on the recommendations of an expert group on commercialisation of infrastructure projects.

Its mandate was to lead private capital into commercially viable infrastructure projects. Besides, the institution was to play an advisory role to the government. Later, it entered into the private equity and mutual fund space. Between 1997 and 2004, IDFC created most of the conditions for private investment in infrastructure in India.

Nasser Munjee, who led the institution in its initial days, played a key role in drafting IDFC's business plans. Munjee left the institution in 2004 owing to disagreements with the government. He differed with the government's perception that IDFC had not done much in the infrastructure space.

In mid 2000s, the government considered merging IDFC with the State Bank of India after the institution was criticised for being risk averse. To its credit, IDFC stayed away from participating in financing the Dabhol project, which turned bad and haunted many large financial institutions for years. IDFC went public in 2005. The institution played a major role in financing many road and energy projects in the country.

As an infrastructure finance provider, it has financed many projects set up by GMR, Tata Group, Essar, L&T, Vodafone, Reliance, NTPC and Sterlite. It helped companies like Talcher Transmission Company, PSL and Great Eastern Energy Corporation raise funds overseas. However, its increased exposure to infrastructure and reliance on wholesale funding, along with the overall economic slowdown, forced IDFC’s top management to consider diversifying into other businesses.

It would be interesting to see how an infrastructure financing institution that has worked with large corporates would lend to individuals and reach out to rural India. The most important challenge for IDFC led by Rajiv Lall, executive chairman, would be to attract lowcost deposits from people.