IDFC's CEO on impact of slowdown

Rajiv Lall, MD & CEO, IDFC

IDFC, the largest infrastructure lender in the country, currently faces one of its biggest challenges since it was set up in 1997. CEO Rajiv Lall, 54, who has been with the company for seven years, speaks to Business Today on the crisis. Edited excerpts:

On ups and downs in the last decade
Who would have imagined that the Indian infrastructure sector would grow so fast and 50,000-60,000 MW would be delivered by the private sector in the 11th Five Year Plan and wind power capacity would grow as rapidly as it has in the recent past? It was difficult to imagine the cost of solar would come down as rapidly as it has over the years. Despite the odds and the scepticism of so many people, what has been achieved in the last seven years, and not just by IDFC , has been extraordinary. IDFC has been riding on the coat-tails on this wider trend. Our challenge is to continue to build on this success and not allow politics and uncertainty to come in the way. The last six months, ironically enough feel more challenging than 2008 was.

On the reforms agenda ahead
If you examine the trend since 1991, the first generation of reforms have run their course and we now need to embark on the next generation reforms. The challenge, however, is that the measures required are such that they need a greater degree of political consensus. I'm not talking of things like FDI in retail etc.  These are irrelevant. I'm talking of much more fundamental reforms like land reforms. Likewise there is the fundamental issue of balance between growth and environment. The third important thing is GST (goods and services tax). That goes to the heart of the centre-state relationship. Fourth is urbanization. Even as all this sounds complicated, a lot of these issues are being resolved in different parts of the country. Different states, different districts, different gram panchayats are confronting these problems on a daily basis and finding solutions. Can we learn from that and highlight it in the media?

On the current slowdown and the policy paralysis
I think the global slowdown is just a distraction. This could have been a terrific opportunity for India to take advantage of global capital. Everybody else is hurting and we are in an economic sense not as integrated as the other major markets. If people had confidence... We are proactively resolving issues. We will see a lot of global capital coming in. You see Moody's has upgraded our local debt market. That tells you something.

On the impact on IDFC's business
Not really (much), we had to manage liquidity. We stopped lending for a quarter. We focused on asset quality as we anticipated problems and therefore were able to get out of them quickly. Today it is not a liquidity problem, but there are potential asset quality issues for the industry. As far as IDFC is concerned, we have managed our books very carefully and navigated past these problems. Underwriting standards are within our control but what is not is growth. If our clients are not investing in projects, then overall growth will inevitably slow down. Last year, we grew at 45 per cent. This year people are expecting us to not grow at all. But we are looking at 15-20 per cent. but 15-20 per cent in this environment is not easy to do.

On the changing financing mix
The positive thing the government has done is to open up the domestic bond market to foreign participation. There is a $25-30 billion allocation for infra where FIIs are allowed to invest. As an infra financing company, we have access to those markets. We have increasingly relied on bond financing. We are issuing bonds domestically as well as to international investors. In addition to that, we are allowed external commercial borrowings and we rely a lot on insurance companies to buy the paper. We issue a combination of FII, ECB, insurance companies has been very useful for us to be able to manage the cost of funds even as the balance sheet has grown. That has been possible because of our infra financing company status.