Deepak Parekh

Chairman

The year 2010-11 was notable in IDFC's growth and development for several reasons. This has been a year where our performance on financial metrics has been more than satisfactory despite overall sluggishness in infrastructure sector growth. More importantly, IDFC put into effect a key element of our longer term strategy of diversifying our resource-raising.

In July 2010, IDFC got the Infrastructure Finance Company (IFC) status within the NBFC category from the Reserve Bank of India (RBI). We leveraged this status to raise debt capital through the issue of infrastructure bonds. As a measure of our efforts to widen our reach among ordinary households, we raised Rs. 1,451 crore from over 7.3 lakh retail investors. In addition, the IFC status, by allowing us to raise capital through External Commercial Borrowing (ECB), has also opened access to a new class of international debt finance agencies. Going forward, we would use our new relationship with these foreign financial institutions to leverage capital in forms other than ECBs, including rupee bonds.

This year IDFC entered the list of top 50 Indian companies in the Standard & Poor’s Environmental, Social and Corporate Governance (ESG) India Index. Our presence on this Index is an indicator to our investors that their portfolio is consciously balancing the interests of all stakeholders, thereby creating a platform for strong long-term performance.

Complementing our core activities in financing infrastructure development in the country, we have carved out our development agenda under the rubric of the IDFC Foundation. The Foundation has now been registered as a company under Section 25 of the Companies Act, 1956, which deals with not-for-profit companies. IDFC will support the Foundation through a certain percentage of its profits every year. The Foundation will also be able to raise more third-party noncommercial development funds for activities such as training government employees and advising the government in policy matters, one of the prime objectives behind the setting up of IDFC. Moreover, I am happy to inform you that IDFC actively continues to contribute to the policy formulation and development strategies of several sectors. IDFC has been nominated on several committees set up by the Union Government including in the transport sector, on electricity distribution, urban water and sanitation, and several financial sector reform committees.

Notwithstanding a good financial year, there are serious challenges mounting in the infrastructure sector. Lack of effective governance and policy/regulatory uncertainty is perhaps the biggest challenge facing not just the infrastructure sectors, but the country at large. Corruption issues that came to the fore in the past year have had a serious negative fall-out. Besides eroding investor confidence, the working environment has become more difficult due to extreme risk aversion in decision-making and consequent delays.

In the power sector, the impact of poor governance by states, lack of political will for reforms, and stalled regulatory processes is leading to a critical situation. This is clearly a matter of concern since this is a priority sector accounting for nearly one-third of the projected investments in infrastructure during the Eleventh Five Year Plan. The private sector’s role has been growing in power generation capacity, as evidenced by the increase in its share in capacity addition from 13% in the Tenth Five Year Plan to 30% in the first four years of the Eleventh Five Year Plan. While an additional 40,000 MW is expected to be commissioned in the next four years, effectively doubling existing private sector installed generation capacity, there could well be a slowing down of this new capacity coming on-stream. Essentially, this is due to two key risks that the sector is facing – fuel risk and off-taker risk. As a result, many thermal plants are operating below capacity and the commissioning of some new ones is being delayed.