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Limit foreign borrowings to hi-tech, export potential projects... The few handicaps... Padma Bhushan for A Ramakrishna He continues the focus on social amelioration CIPET hqrs to stay at Guindy – for the present? More tributes to GR Reliance’s TV – 18 ready to launch Tamil News Channel Protest masters... Secularism and anti-Hinduism This scant respect for Law Fortune for Indian Airlines Tatas moving out of urea production... TGS- The king storyteller Online not in line with brick and mortar businesses... A Grand Finale for SN’s MS centenary at the US… When the President was rendered homeless… Godspeed, Chief Minister JJ Editor's Notes Medical costs hit the roof... Measuring roof tops in terms of KW/MW Roaring Ro-Ro facility West Bengal: mindless malignancy PPP mode for upgrading Corporation Hospitals The rise and rise of KCP Towards speedy justice Tribute – Manikam Ramaswami For whom the MIDS bell tolls? No engine for this car Tatas moving out of urea production... 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London, London Narayan Mu Sigma – is no more Diamond jubilee of Egmore Samskrt School Dr C Rangarajan returns to Chennai Making ‘my Amaravati’... When TN politicians can emulate Kerala's Russi Mody – a tribute Adharma of opposition politics TN – agglomerate land holdings without alienating ownership Where a state respects its litterateurs… Welcome changes that testify to Jayalalithaa’s return to health Varuna (rain) in 2015; Vaayu (air) in 2016. Chennai devastated Moily’s bold thrust Welcome GST Multi-faceted Venkat Sweet news for TN sugar mills Recognition to role of NBFCs.... The Ports’ Pasha expands into Tamil Nadu Plummeting profits of PSBs Readers' Mail IPL type auction for VCs? 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Modi and the lady F C Kohli - his concerns all embracing Contrarian cousins Sweeter prospects for sugar Pharma – overdose of copying Return to king coal for urea... Streamlining mandatory third party cover A glass full of corruption Road development slows down A rich pool of talent not utilised…. The nuclear option Fuel for thought Poor representation for Kerala and TN in Cabinet Parliament in paralysis... to the lack of interest on the part of these to focus on original research. This despite the much lower costs of such research in India. The industry which thrived on the protection of a closed economy and the advantage of a vast domestic market, has failed to organise its evolution on healthy lines Breaththrough in malaria control Modi storms Silicon Valley CSR and CMI: promise of another Srinivasan Ramanujan... Engineering seats go abegging Funding the un-funded Nuclear power at the nucleus An inexplicable neglect How Air-India loses customs... Come elections, come advertisements... TN accounts for the largest recruits by the IT sector Where is Rajaji? Solar, solar everywhere … There was flood of milk. Reason: no milk commissioner! He saved millions from starvation... Whistle-Stop Tour of Raghuram Rajan B H Kothari - a tribute Land reclamation from sea appears cheaper! Revive development banks... The ‘Ayyo-yes’ is no more
 
Revive development banks...

The first three decades of industrial development were marked by provision of finance on facile terms. Specialised development banks like ICICI, IDBI, IFCI and state financial institutions lent capital and term loans on attractive terms. The Madras Industrial Investment Corporation (that later became TIIC), set up in 1949, pioneered such industrial development finance both for equity and loans. These institutions have been extremely effective in attracting hordes of new class of entrepreneurs with modest resources of their own. I cite the instance of the evolution of the Padi complex where the famous house of TVS embarked on manufacturing. In 1962, the first of such units, Wheels India Ltd, was inaugurated. This was quickly followed by Sundaram Clayton, Brakes India, Lucas TVS... The funding was simple: for Wheels India, the total initial cost was Rs 200 lakh; around Rs 25 lakh each was contributed as equity by TVS and the collaborator Dunlop of UK. The balance was sourced as a term loan from a development bank.

    Similar was the funding for the other units at Padi that commenced production in quick succession. Dozens of units of Amalgamations, the Rane Group and several companies in the sectors of automobile, textiles, cement and sugar were set up with modest capital outlays with a portion contributed by the promoters and the balance funded through equity/term loans from development banks and SFCs. Until George Fernandes as Industry Minister in the Janata government  mandated public participation for a portion of equity capital, there wasn’t the need felt by promoters to go to the public for capital. In fact, the modest capital base of most southern companies didn't really need public funding. The promoters, for most part, were reluctant to go public.

Development banks, thus did a yeomen service in nurturing entrepreneurship. Hundreds of companies owe their existence to the funding extended by such banks. The latter developed a great deal of expertise in raising resources and in lending these over the medium and long terms. Of course, not all the portfolios ended profitable and there were bad debts and non-performing assets. But on the balance, these did yeomen service for industrial development.

In the 1990s with the opening up of the economy these institutions underwent a massive change. There arose vastly expanded scope for raising deposits from the public. This resulted in the development banks opting to become commercial banks. In the enthusiasm and attraction to grow as large commercial banks, these have lost their earlier thrust for development financing. There is also the mismatch between raising deposits over short term and lending for infrastructure and industry over long term. The resulting huge ballooning of non-performing assets is a cause for serious concern. (see article by S A Raghu page 36)

I feel there is need to return to the old days: of setting up development banks for industry. Specialised infrastructure development financing agencies on the one hand and the MUDRA Bank on the other are welcome initiatives. There is need for such specialised institutions to lend for equity and term loans escpecially for hundreds of mid-sized enterprises on modest  interest rates.


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