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When nations steal growth from one another… Making ‘my Amaravati’... Small units prefers to remain small... Varuna (rain) in 2015; Vaayu (air) in 2016. Chennai devastated The star of Spencers is no more TN – agglomerate land holdings without alienating ownership Lalu’s envy, India’s pride MHC should not return to its old indisciplined ways TN accounts for the largest recruits by the IT sector Contrarian cousins Limit foreign borrowings to hi-tech, export potential projects... S V Raju – a ‘good’ true liberal Mersal magnified The power-full Hindujas Bihar – Nitish Kumar adopts the Lalu model Tribute – M V Murugappan Robber barons everywhere Don’t seem to feel the pulse… Streamlining mandatory third party cover A proud Madrasi A yen for wastage… The Ports’ Pasha expands into Tamil Nadu Editor's Says Liberal imports idling indigenous capacities GM Technology at last! Building loyalty through the stomach Haul over the coal No Maha Koottani in TN... He saved millions from starvation... 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PPP mode for upgrading Corporation Hospitals More heat than light Towards speedy justice CII projects higher growth… Shaming of Tamils by Tamil farmers at Delhi TELANGANA at last…BUT Tatas moving out of urea production... When TN politicians can emulate Kerala's Kinetic Karnataka Put expensive assets created to use... Wise Presidents Increasing non co-operation of state leaders Cement prices continue to rise… Adharma of opposition politics Alexa – Talking Wikipedia The nuclear option Tax agriculture Fortune for Indian Airlines Things happen by accident and not by design... Rahman at CIC Tribute – UCAL Selvan… Sweet news for TN sugar mills Poor quality of university VCs
 
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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