In a recent address on banking IndusInd Bank Chairman R Seshasayee referred to the vital role discharged by development banks in nurturing enterprise in the pre-1991 era. Development financial institutions like IFCI, IDBI, ICICI and SFCs had rendered yeomen service in encouraging new ventures. These were helpful in attracting a new generation of citizens to set up business enterprises. Visionaries like R Venkataraman helped vast numbers of these, providing them with licences and facilitating access to capital. For states like Tamil Nadu which lacked a culture of investing in equity, it was a boon. Hundreds blossomed as entrepreneurs. Unlike today there was no fear of a low promoter share in equity and loan funds dominated capital expenditure.
I remember the ease with which companies were set up and production commenced in quick time. I cite the instance of the TVS family that was primarily engaged in transport and financial services before the 1960s. Look at the evolution of Padi as a strong auto component complex. The first of these, Wheels India, was set up in 1961-62 with a total investment of Rs 200 lakh. The equity of Rs 50 lakh was contributed equally by the promoter family of TVS and Dunlop, UK; the balance through a term loan of Rs 150 lakh from development banks. Such structure with a high debt-equity ratio was standard for the growing private enterprises of Tamil Nadu. The protected market, free from competition, ensured a low rate of failures.
Post-liberalisation in 1991 the twin comforts for the promoter with a high gearing and a protected market vanished. Size of investments also grew. With development finance institutions converted into commercial banks, long-term funding for industrial development, especially for long gestation infrastructure projects, became scarce. There have been unpredictable massive changes, both global and national, in technology and trade. Lenders have been burdened with NPAs. There is as yet not much of a move to tackle the issue of funding projects over the long term.
