Document of

The World Bank FE C ?YFOR OFFICIAL USE ONLY

Report No. 2890-IN

INDIA

STAFF APPRAISAL REPORT

OF A

THIRTEENTH LOAN

TO THE

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA

April 18, 1980

Industrial Development and Finance DivisionSouth Asia Projects Department

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

US$1.00 = Rs 8.29

Rs 1 = US$0.121Rs 1.0 million = US$121,000

ABBREVIATIONS

CDFC - Commonwealth Development Finance CorporationDEG - Deutsche Gesellschaft fur Wirtschaftliche

Zusammenarbeit (Entwicklungsgesellschaft)DFC - Development Finance CompaniesDIC - District Industries CenterDRC - Domestic Resource Cost

ERR - Economic Rate of ReturnFRR - Financial Rate of ReturnGOI - Government of India

ICICI - Industrial Credit and Investment Corporationof India

IDBI - Industrial Development Bank of IndiaIFCI - Industrial Finance Corporation of IndiaIIG - Inter-Institutional Group MeetingIIM - Inter-Institutional MeetingKfW - Kreditanstalt fur WiederaufbauLIC - Life Insurance CorporationMRTP - Monopolies and Restrictive Trade Practices ActRBI - Reserve Bank of IndiaSFC - State Financial CorporationSIDC - State Industrial Development CorporationUTI - Unit Trust of India

FISCAL YEARS

GOI, SFCs - April 1 - March 31

ICICI - January 1 - December 31IDBI, IFCI, IRCI, RBI - July 1 - June 30

INDIA FOR OFFICIAL USE ONLY

APPRAISAL OF A THIRTEENTH LOAN TO THEINDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA

TABLE OF CONTENTS

Page No.

I. INTRODUCTION ............................................ 1

II. INDUSTRIAL SECTOR IN INDIA .............................. 2Economic Setting ................................... 2Industrial Structure ............................... 3Industrial Policies and Priorities .... ............. 4Recent Industrial Performance andInvestment Outlook ............................... 10

Industrial Finance ................................. 10

III. INSTITUTIONAL DETAILS OF ICICI .......................... 13Ownership, Organization and Staffing .... ........... 13Operating Policies, Procedures and Standards .... ... 14Relations with Government and Business .... ......... 17

IV. PAST OPERATIONS AND PERFORMANCE ......................... 18Financing Operations ............................... 18Characteristics of Projects Financed .... ........... 19Other Development Activities ....................... 21Quality of Portfolio ............................... 23Resources .......................................... 24Financial Performance .............................. 26

V. FUTURE OPERATIONS AND RESOURCE NEEDS .................... 27Operations Forecast ................................ 27Resource Requirements .............................. 28Financial Projections .............................. 30

VI. THE PROPOSED LOAN, ITS JUSTIFICATION AND RISKS .... ...... 31The Proposed Loan .................................. 31Benefits ........................................... 32Risks .............................................. 33

VII. RECOMMENDATION ......................................... 33

LIST OF ANNEXES

1 - Distribution of Shareholding as of September 30, 19792 - Estimated Quarterly Disbursement Schedule for Proposed

Thirteenth Loan3 - Supplementary Tables4 - Documents Available in the Project File

This report is based on an appraisal mission consisting of Messrs. D. Cookand C. Bam in November/December 1979.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

INDIA

APPRAISAL OF A THIRTEENTH LOAN TO THEINDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA

I. INTRODUCTION

1.01 The Industrial Credit and Investment Corporation of India (ICICI)was established in 1955 with the active assistance of the Bank. Since thenit has developed into a large, well managed and mature financial institution,which enjoys the respect of the Government and the business and financialcommunities. ICICI is the principal institutional source of foreign ex-change financing for investment projects of medium and large scale privateindustrial firms, and is also an important source of local currency termfinancing for these firms. Since 1955, the Bank has made twelve loans toICICI totalling US$505 million. The proceeds of these loans and other re-sources mobilized by ICICI have been used to finance more than 2,500 invest-ment projects. The twelfth Bank loan of US$80 million was made in July 1977,and by December 31, 1979, IBRD had credited US$67.7 million, and disbursedUS$37.8 million. ICICI expects to have fully committed the twelfth loan andits other available sources of foreign exchange by June 1980 and has thereforerequested the Bank to continue to support its operations with a further loan.

1.02 ICICI's operational efficiency and impact on industrial and economicdevelopment have been extensively studied by the Bank Group. In 1973, amajor study undertaken jointly by the Bank and ICICI concluded that ICICI'simpact had been substantial, particularly through helping to ensure that scarceforeign exchange resources were allocated to priority industries mountingfinancially and economically sound projects. This conclusion has also beensupported by Operations Evaluation Department performance audits for the sixth,seventh and eighth loans completed in 1975 and the project completion reportfor the ninth and tenth loans, issued in January 1980. In line with the recom-mendations made in these reports, the eleventh and twelfth loans were designedto encourage and assist ICICI to diversify its sources of local and foreigncurrency and to broaden the scope of its activities so as to enhance furtherits developmental impact. Progress to date has been satisfactory. ICICIraised its first syndicated eurodollar loan in 1978 and rupee resources havealso been significantly increased through domestic bond issues and jointfinancing operations with other institutions. ICICI has undertaken severalimportant industrial studies and has initiated a wide range of developmentalactivities.

1.03 The objectives of the proposed loan would be to build on the pro-gress achieved in recent operations by: (i) continuing to use ICICI as anefficient channel for financing high priority industrial investment projects;(ii) assisting ICICI to make greater use of foreign commercial borrowings byfacilitating blending of Bank and commercial funds in ICICI's operations;and (iii) assisting ICICI to expand selectively its program of industrialstudies and other developmental activities and to ensure that these comple-ment mainstream financing operations, address major problems and constraintsaffecting the industrial sector, and make best use of ICICI's experience andresources.

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II. THE INDUSTRIAL SECTOR IN INDIA

Economic Setting

2.01 A detailed assessment of the status and prospects of the Indianeconomy is contained in the Bank's latest Economic Report, No. 2431-IN,dated April 9, 1979. A brief summary of recent developments and trends isgiven below.

2.02 The Indian economy ended 1978/79 1/ in a relatively strong position.GDP growth of 4.4% in 1978/79 came after three years when growth averaged about6% per annum, yielding a cumulative rise in real per capita incomes of morethan 10% over the four year period. A major factor contributing to thisabove average economic performance was the impressive gains made in agricul-ture. Favorable weather conditions, increased fertilizer use, introductionof higher yielding varieties and expansion of the area under irrigation, ledto a succession of bumper harvests. Stocks of foodgrains with Central andState Governments stood at a record level of 21.6 million tons in July 1979.In response to more buoyant domestic demand and increased supply of inputs tothe agro-processing industries, industrial production grew by 7.5% in 1978/79.Production gains could have been higher but for recurring shortages of basicinputs, such as coal and steel, and power and transport bottlenecks. Foreignexchange reserves continued to rise as a result of the large net inflow ofinvisible receipts, although the rate of accumulation of reserves slowed downfollowing the liberalization of imports and a drop in the net inflow of ex-ternal assistance. As of July 30, 1979, foreign exchange reserves totalledRs 53,462 million (US$6,449 million), sufficient to cover about nine months ofimports. Price stability continued for most of 1978/79 with the average levelof the wholesale price index for the year showing no significant rise over theaverage level for the previous year.

2.03 Economic performance in 1979/80 has been affected by a combinationof adverse factors. The southwest monsoon rains were late and ill distri-buted, leading to severe drought conditions in many states. As a result,it is estimated that the kharif foodgrains harvest may fall short of theprevious year's record levels by 10 million tons (13%). The rabi harvestappears less severely affected, but may also be lower than last year's levels.Output of other crops, including sugar and jute, has also been adverselyaffected. Preliminary indications are that overall agriculture productionmay be 8% lower than in 1978/79. Industry has also been hard hit, and little,if any, production growth was recorded in the first nine months of 1979/80.Power supply to industry had to be severely curtailed because of the effectsof the drought on hydroelectric power generation, coal shortages, and theneed to give priority in electricity use to the agricultural sector. Indus-try's problems were further compounded by increasing shortages of steel,cement, aluminium and other basic inputs, inadequate availability of railwaywagons, congestion at the ports and increasing industrial unrest. Politicaluncertainties made it more difficult to react speedily to the numerous

1/ The Indian financial year runs from April 1 to March 31.

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problems affecting the economy. Inflation has accelerated as a result of

scarcity of certain manufactured goods and agricultural commodities and

increased prices and reduced supplies of petroleum products, particularly

diesel oil and kerosene. During 1979, the wholesale price index increased

by about 20%.

2.04 The Indian economy has suffered a significant setback in the cur-

rent year and careful supply/demand management will be required to bring down

the rate of inflation. Moreover, the sharply increased costs of petroleum

imports are expected to result in a significant widening of the trade deficit

in the coming year. Economic growth may be relatively modest in 1980/81,

but there are favorable indications that the economy may be able to regain

its growth momentum fairly rapidly thereafter. Political uncertainties have

been resolved following the recent election and the high level of foreign

exchange reserves should obviate the need for a severe curtailment of imports.

Stocks of key commodities such as cereals, cotton and jute are more than

adequate to offset the 1979/80 production shortfalls. The production poten-

tial of the agricultural sector has continued to improve and, barring another

poor monsoon, agricultural output could resume its upward trend in the next

growing season. The industrial sector could also make a significant contri-

bution to economic growth and export expansion provided that power supply

and transportation bottlenecks are eased, an adequate rate of investment is

maintained and a favorable policy environment prevails.

Industrial Structure

2.05 Structure of Output. India's industrial sector, broadly defined

to include manufacturing, mining, construction and utilities, contributed

about 23% of GDP in 1978, of which manufacturing contributed 16-17%. In 1950

when the first National Plan was initiated, industry was heavily oriented

towards the production of consumer goods, with traditional industries such

as textiles and food processing responsible for about half of manufacturing

output. Over the next 15 years, industrial production expanded by 7-8%

annually, with particular emphasis being placed on the expansion of capital

goods production including industrial machinery and transport equipment,

and expansion of "basic" industries producing primary goods such as iron and

steel, cement and fertilizers. Substantial structural transformation took

place over this period, with intermediate and capital goods representing about

60% of output of the organized factory sector by 1965. Since then the rate

of industrial expansion has slowed down to an average of about 4% per annum.

Structural change has continued with production of "basic" industries, and

certain capital goods industries such as diesel engines, agricultural machin-

ery, and heavy electrical equipment growing at a significantly faster rate

than industry as a whole. India now has a broad based and fairly sophisti-

cated industrial sector that can produce most of the country's needs for

manufactured products. Imports are mainly of industrial raw materials and

intermediates for which India does not have the raw material base, and some

sophisticated types of machinery. Sufficient attention was not paid to

expanding manufactured exports until the early 1970s. Since then, exports

have expanded quite rapidly (18.9% p.a. in current US dollars between 1970

and 1978), but still represent only about 5% of total manufacturing produc-

tion. Exports of engineering goods rose particularly rapidly to to reach

US$720 million in 1977/78.

2.06 Factory Sizes and Structural Characteristics. About two thirds ofmanufacturing output comes from firms registered under the 1948 FactoriesAct, which generally have 10 or more employees. The other third comes fromunregistered labor intensive small scale units, which together employ about70% of the industrial labor force. The size structure of the firms in theregistered segment and some corresponding structural ratios are shown inTable 2.1 below. Almost 80% of the registered units are relatively small,having less than 50 workers. However, these small units only produce about12% of the total value added by the registered units. While capital inten-sity tends to increase with firm size, only the very large units with morethan 5,000 workers show very substantial differences in capital intensity.Taken as a whole, the factories of all sizes appear quite labor intensive,with an average of Rs 24,319 (about US$3,000), of fixed capital per employeein 1976 using depreciated book values of fixed assets. Converting to replace-ment values and 1979 prices, the average fixed capital per employee wouldrise to about US$8-10,000. The efficiency of capital utilization, as measuredby the ratio of fixed capital to value added, is similar for firms of allsizes other than very large units, for which it is significantly lower.

2.07 Ownership Pattern. About 66% of industrial value added by registeredunits originates in the private sector. The proportion of output coming fromthe public sector units has increased from 20% in 1970 to 28% in 1976/77,reflecting heavy Government investment in certain subsectors including elec-tricity generation, steel, and cement and the nationalization of part of thetextile industry. With government encouragement, the Joint Sector, compris-ing mainly new medium sizes units established with public and private parti-cipation, has also expanded and by 1976/77 contributed about 6% of industrialvalue added. Table 2.2 compares the principal characteristics of industrialfirms by type of ownership. It indicates that some 93% of registered factoriesare in the private sector. The private firms employ about 70% of the workersin registered firms and contribute two thirds of value added, using only 30%of total fixed assets. By comparison, the public sector firms are much larger,with over 400 workers on average, and have six times as much capital investedper employee as the private firms. Productivity in the use of capital, asmeasured by the ratio of fixed capital to value added, appears substantiallybetter in the private sector units. While the differences between the publicand private sector productivity are partly attributable to the differences insubsector mix, with public sector investment concentrated in the naturallymore capital intensive subsectors, more efficient management in the privatesector is also an important factor. The performance of the Joint Sector plants,which generally have private sector management, is closer to that of the pri-vate sector plants.

Industrial Policies and Priorities

2.08 The basic development strategy laid down in India's IndustrialPolicy Resolutions of 1948 and 1956 has continued to guide the developmentof the industrial sector for most of the past 25 years. The strategy focusedon achieving a high degree of self-sufficiency in manufacturing through importsubstitution and curbs on foreign ownership. In addition, a program of

Table 2.1. Structural Ratios of Registered Factories by Scale of Employment (1976/77)-/

No. of Total Fixed - Value Value Added Fixed Capital/ Fixed Capital/ Operating Surplus/Employment Range Factories Employment Capital Added Per Employee Employee Value Added Productive Capitalc/

(thousands) (Rs million) (Rs million) (Rs) (Rs)

0 - 49 64,402 1,002 8,184 6,292 6,279 8,166 1.30 0.2550 - 99 7,915 550 4,480 3,930 7,143 8,143 1.14 0.29100 - 199 4,274 641 5,816 4,830 7,533 9,071 1.20 0.26200 - 499 2,609 803 11,565 9,415 11,727 14,405 1.23 0.28500 - 999 981 679 18,704 9,755 14,364 27,541 1.92 0.16

1000 - 2000 658 931 24,276 14,071 15,107 26,062 1.73 0.22

2000 - 4999 359 1,059 17,287 13,271 12,535 16,328 1.30 0.215000 and above 79 984 71,335 11,543 12,751 72,579 6.19 0.05

TOTAL 81,277 6,649 161,706 73,107 10,995 24,319 2.21 0.11

a/ Based on Annual Survey of Industries 1976-77, Central Statistical Organization

b/ Fixed Capital includes plant, machinery, land and buildings at the depreciated value shown in company.books.

c/ Productive capital is fixed capital plus working capital.

Table 2.2. ri_ncP Il C iharacteristics of Registered Factories by Ownership Type-

PercentaQ,e DisErioution Structural Ratios

Number of Fixed Fixed Capital Fixed Capital Operating Surplus/

Factories Capital Employees Value Added per Employee over value added Productive Capital

Rs.

Public Sector 4.6 62.9 23.7 27.8 64,382 5.0 0.7

Joint Sector 1.7 6.7 5.8 5.9 28,352 2.51 0.14

Private Sector 93.7 30.4 70.5 66.3 10,500 1.02 0.30

Total 100.0 100.0 100.0 100.0 24,319 2.21 0.16

a/ Based on 1976-77 Annual Survey of Industries

expanded public ownership has been pursued, particularly in respect of heavyindustries supplying basic inputs to the industrial and agricultural sectors.Successive governments have also sought to restrict the concentration ofeconomic power through constraints on the expansion of large private under-takings and special support programs for small scale industries and indus-trially backward regions. To implement this strategy, a very comprehensiveand cumbersome regulatory framework has grown up. The principal instrumentsused have been central licensing of investment, controls on imports andexports, allocation of 'scarce' domestically produced raw materials, pricecontrols and reservation of production of certain items for small scale firmsand the public sector.

2.09 The industrial strategy outlined above was quite successful in pro-moting rapid industrialization up to 1965 and in enabling India to develop abroad based industrial structure. However, certain shortcomings have becomeapparent in later years. Between 1965 and 1975 the industrial growth rate waslittle faster than that of the economy as a whole and growth of employment inthe organized industrial sector, at about 1.8% p.a., did not keep pace withthe growth of the labor force. In the protective environment in which indus-try developed, inadequate attention was paid to product quality, economies ofscale and technological development with the result that many industrial firmswere not well placed to compete in export markets as opportunities for furtherimport substitution declined. Domestic demand for consumer goods was con-strained by the relatively slow growth of per capita incomes and demandfor investment goods was strongly dependent on the level of public investmentwhich tended to fall after 1965. Moreover, inefficiencies in managementand capacity constraints in public sector plants supplying key inputs to therest of the industrial sector often held back industrial production even whendomestic demand was buoyant.

2.10 Over the past five years, GOI has been reconsidering some of theelements of its industrial strategy. Important modifications have been madein industrial policies with the intention of boosting the industrial growthrate, encouraging greater efficiency in capacity utilization in the publicand private sectors and stimulating industrial exports. The new industrialstrategy statement issued in 1977 reduced somewhat the emphasis on heavyindustrialization as the key to industrial growth, and gave greater weight toemployment creation and decentralization of industrial activity by increasedsupport for small scale activities in small towns and rural areas. Thisstrategy statement did not signal any major change in the character of theregulatory system. However, the process of liberalization and streamlininginitiated earlier has continued since 1977. The new Government which assumedoffice in January 1980 is still reviewing its industrial policies and stra-tegies and it is not yet clear what modifications may be made to the 1977strategy statement.

2.11 Liberalization of Industrial Licensing. The process of simplifyingand speeding up procedures for the issuance of industrial licenses startedin 1973 when a time limit was established for clearing license applications.Several subsequent changes have been made to liberalize licensing require-ments. Diversification of production by a number of engineering industries

is now permitted, within the limits of overall licensed capacity, to facili-tate better utilization of installed capacity in the face of varying marketconditions. Certain export-oriented engineering industries are permittedto grow over a five-year period by 25% over their licensed capacity. Fol-lowing the report of the Ramakrishna study group in 1978, the upper limit forthe size of investment that would be exempt from licensing was raised fromRs 10 million to Rs 30 million for firms with total assets of less than Rs 200million. Overall, these changes have significantly reduced the delays andconstraints of the licensing system for most industrial firms. The 'largehouses' and foreign companies (as defined in the Foreign Exchange RegulationAct, FERA, 1974) remain fairly tightly restricted but they are now permittedto expand in certain specified industries. In April 1979, the Committee ofIndustrialists set up by the Government submitted its report proposing furtherliberalization of licensing. The recommendations of this committee, whichare understood to include further raising the license exemption limit, changingthe definition of 'large houses' under the MRTP Act, 1/ and allowing privatefirms to expand into activities currently reserved for the public sector, arestill under review by the Government.

2.12 Import Controls. With the build up of foreign exchange reserves, amore liberal import policy has been followed since 1976/77 aimed at relievingdomestic supply constraints and production bottlenecks, encouraging industrialinvestment and facilitating exports. Following the recommendation of theAlexander Committee, the import licensing system has been rationalized, pro-cedures simplified and controls eased. Separate lists have been prepared forimport items that are 'banned' or 'restricted,' imports of items not on theselists being allowed freely. Imports of a wide range of capital goods, compo-nents, spares and industrial raw materials, including some on the restrictedlist, is now permitted to 'actual users' on an Open General License (OGL)basis. Certain basic industries like fertilizers, power generation, basicdrugs, cement, paper, petroleum exploration and production and fully export-oriented industries are allowed to import plant and equipment by invitingglobal tenders. The number of items for which imports are required to bechanneled through designated agencies has been significantly reduced. Importsof raw materials and intermediate goods by registered exporters have beensubstantially liberalized. Special measures have also been introduced toincrease availability and reduce costs of imports to the small scale sector.Overall, a gradual transition has been taking place towards the developmentof a protection system based more on tariffs than on quantitative restrictions,thereby opening the economy to a more healthy degree of competition.

2.13 Export Controls and Incentives. The principal instruments ofexport promotion, including cash compensatory support (partly compensationfor payment of indirect taxes), duty free imports of inputs or duty drawbackarrangements, and concessional interest rates on export credits have continuedin force. Important improvements initiated during the last few years includerationalization of the export licensing system, decentralization of admin-istrative functions and strengthening of the promotional systems. Exportlicensing is now required only in respect of a limited number of essential

1/ Monopolies and Restrictive Trade Practices Act.

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items in short supply in the domestic economy. The range of export items thatare required to be channeled through designated agencies has been severelyreduced. However, export quotas and minimum export prices remain in force forsome commodities. Some steps have been taken to strengthen the role of ExportHouses in promoting exports, particularly those deriving from small andcottage industries. The State Trading Corporation and the Trade DevelopmentAuthority have also increased their technical assistance and promotionalsupport to small exporters.

2.14 Statutory Price and Distribution Controls have been in force forseveral years in respect of 'essential' products such as iron and steel,cement, sugar, paper and fertilizers. The effect of these controls hasbeen to hold down profitability in the affected industries and to discourageinvestments with the result that periodic or chronic shortages have emerged.These effects have had to be mitigated at times by the introduction of specialincentives to encourage investment. Over the last few years some price controlshave been eased and improvements in price control mechanisms have been made,particularly in respect of more frequent price reviews, setting controlledprices so that the industries concerned can achieve an acceptable return oninvestment, and increased recourse to imports in order to moderate price risesof items in short supply.

2.15 Support for Small and Cottage Industries has been provided in suc-cessive Government plans and policy statements in view of their predominantrole in industrial employment. Current employment in unregistered (mostlytraditional) small industries is estimated at 14 million persons and a further2.8 million persons are employed in the small registered units in the modernsector. Altogether over 80% of industrial employees work in the small scaleunits. A wide variety of support mechanisms have been used includingexemptions from licensing requirements, reservation of production of certainitems exclusively for small units, and a host of special programs to provideconcessionary credit terms, technical assistance, hire purchase finance,industrial buildings, and raw material supplies. Success of these programshas been limited by inadequate attention to marketing and product quality, andthe proliferation of institutions at state and central Government levels withoverlapping functions, inadequate funding and insufficient representation atthe grass roots level. The 1977 industrial strategy statement seeks tostrengthen support for the small scale sector by additional production reser-vations, and a substantial increase in funding for the special programs. Inaddition, the District Industries Center (DIC) Program was launched in 1978 inan attempt to improve the institutional and organizational framework forimplementing small industry support programs. The intention is to establish aDIC in each of India's 400 districts to provide at local level a single centerfor planning and coordinating all types of assistance to small industry. TheDIC program received strong encouragement from the Government and, by March1979, 346 DICs had been sanctioned, of which about 200 had initiated opera-tions. It is too early yet to judge the success of the program. Difficultieshave been encountered in recruiting suitable staff and in persuading stategovernment departments to delegate administrative and financial powers undervarious industrial and trade acts to the DICs. Nevertheless, significantprogress has been made in several states. The DIC program potentially couldhelp resolve some of the organizational weaknesses that have been apparent inthe past, but there is clearly a danger that unless carefully managed it could

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become yet another level of bureaucracy of marginal usefulness. There is alsoa need to forge better links between the small units and the larger privateand public sector plants through subcontracting and component supply rela-tionships so as to foster the development of a better integrated and moredynamic industrial structure.

Recent Industrial Performance and Investment Outlook

2.16 Helped by the stronger performance of the agricultural sector andthe more liberal policy environment, industrial output growth averaged 7%p.a. between 1975/76 and 1978/79. Average capacity utilization levels inthe corporate sector rose from 76% in 1976 to 82% in 1978. The after-taxrate of return on net worth of the medium sized and large private companies,which had been on a declining trend throughout the late 1960s and early1970s, stabilized at about 10% after 1975/76 and increased somewhat in1978/79. The real level of fixed investment in the private corporate sectorhad been on a declining trend also for most of the 1970s because of low pro-fitability and the slow growth of domestic demand. However, some revivalin investment started in 1977/78 and 1978/79 and there are indications, fromthe applications and sanctions of ICICI and the other term lending institu-tions, that the rising trend has continued into 1979/80. Thus, it appearedthat conditions were being created for industry to have a sustained periodof higher output growth.

2.17 As noted in para 2.03, 1979/80 has been a difficult year for theIndian economy, with industrial production being severely constrained by theimpact of the drought on agricultural output and electricity generation, andby the cumulative effects of power shortages, transportation bottlenecks andlabor disputes. Recessionary conditions may prevail in 1980/81 also becauseof the drop in rural incomes and the need to stabilize the economy. Theindustrial. sector has demonstrated its ability to recover rapidly from pastrecessions. However, if such recovery is to be sustained, it is importantthat an adequate level of investment in modernization and capacity expansionis maintained, that power and infrastructure bottlenecks are overcome and thatgreater attention is paid to expanding manufactured exports. With profitlevels lilkely to be relatively low in 1979/80 and 1980/81, industrial firmswill need to rely increasingly on external sources of credit to finance theirinvestments. ICICI can play an important role in providing the required fundsand, through its project appraisal and promotional activities, helping toensure that available resources are used for efficient, high priorityinvestments.

Industrial Finance

2.18 General. In recent years, between two-thirds and three-quarters ofgross fixed investment in industry has taken place in the public sector units,financed largely out of Central and State budgets. In the private sector,internally generated funds including depreciation reserves and retained pro-fits have traditionally been the most important source of investment finance.However, the combined effects of inflation and relatively low profitability,have led to an increasing reliance on external financing, which contributed57% of total sources of funds of large and medium sized industries in 1975/76compared to 45% in 1961/62. Available indicators suggest that this trend hascontinued in the last few years.

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2.19 Financial Institutions. India has an extensive and well establishedstructure of financial institutions serving the industrial sector. Theseinclude industrial term-lending and investment institutions at the all-Indiaand state levels, commercial banks, stock exchanges and a variety of specialpurpose institutions supporting small industry and other priority sectors.The principal all-India industrial finance institutions are IDBI, ICICI, IFCI,LIC and UTI 1/ which mainly provide term-financing for large and medium sizedpublic limited companies in the private and joint sectors and also for somepublic sector firms. At the State level, the most important institutionsare the State Financial Corporations (SFCs), which finance small and mediumscale industries 2/ and the State Industrial Development Corporations (SIDCs)which mainly promote and help finance larger industries having direct StateShareholding. 3/ While these term-lending institutions finance only about 6%of total fixed investment in industry, their importance in financing privateindustrial investment has been increasing. Their total disbursements wereequivalent to 29.5% of private fixed investment in industry in 1976/77 com-pared to 18.2% in 1970/71 (see Annex 3, Table 16). Commercial banks areimportant mainly as providers of working capital finance to industry, butthey also provide some term-loans, which account for 5-10% of their totalcredit outstanding to industry.

2.20 IDBI, as the apex institution for industrial financing in India,is responsible for coordinating the activities of the other all-India andstate-level institutions and provides financing (through refinance facilitiesand equity participation) to SFCs and SIDCs and refinance to commercial banksfor small industry loans. The direct financing operations of IDBI, ICICI andIFCI, comprising term-lending, equity investments and underwriting of shareand debenture issues, are similar in character. In the past IDBI and IFCIhave tended to concentrate rather more on the traditional subsectors (e.g.textiles, sugar, food products, cement and electrical generation) and onjoint/public sector projects. ICICI is more heavily represented in the non-traditional subsectors such as chemicals and petrochemicals, electrical equip-ment and electronics and mechanical engineering. ICICI is also the mostimportant institutional source of foreign exchange financing for privateindustry, accounting for about three-quarters of foreign exchange financing byall of the institutions. Joint financing of the local currency requirementsof the larger projects among the all-India institutions is becoming increas-ingly common, and there is now substantial overlap in their clientele.

1/ Industrial Development Bank of India (IDBI), Industrial Credit andInvestment Corporation of India (ICICI), Industrial Finance Corporationof India (IFCI), Life Insurance Corporation of India (LIC), and UnitTrust of India (UTI).

2/ SFCs do not grant financial assistance to companies whose paid upcapital and free reserves exceed Rs 10 million. SFCs maximum assistanceto a single company is Rs 3 million.

3/ Other financial institutions at the State level are State Small Indus-tries Corporations (SSICs) which allocate and distribute raw materialsto small industries and provide some hire purchase finance, and StateSmall Industries Development Corporations (SSIDCs) whose main activitiesare to establish and manage industrial estates.

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While LIC and UTI support industrial investment through direct subscriptionsto share and debenture issues, LIC also participates in joint financing ofrupee term-loans with the other institutions. In the past five years, anumber of steps have been taken to streamline and standardize the proceduresfor joint financing among the term-lending institutions, including the adop-tion of a lead-bank system, and the procedures now work quite well (para 3.07).

2.21 Interest Rates and Credit Policy. Total credit extended by thecommercial banking system grew by 20.8% in 1978/79, continuing a trend ofrapid credit expansion evidenced in each of the previous three years. Bankdeposits grew slightly faster, resulting in a reduction in the gross creditto deposit ratio from 72% in June 1977 to 66.9% in June 1979. Disbursementsof the industrial term-financing institutions also increased rapidly, by 33.9%in 1978/79 compared to 16.2% in the previous year. With inflation 1/ averag-ing about 5% p.a. since 1975/76, credit expansion has been quite rapid inreal terms and credit availability has been a less serious problem. Commer-cial bank interest rates on short-term loans were reduced from 16.5% to 15%early in 1978. Interest rates on savings were also reduced, from 8% to 6%on deposits of 1-3 years and from 9% to 7.5% on deposits of 3-5 years andfrom 10% to 9% on deposits of over 5 years (see Annex 3, Table 1). Sincethe inflation rate began to rise in late 1978, the Reserve Bank of India (RBI)has taken steps to curb credit expansion, including higher statutory liquidityratios for the banks, credit ceilings for industrial borrowers and increasesin interest rates. Short term interest rates have now risen to 16-18% andterm deposit interest rates by one percentage point. Interest rates chargedby the industrial term-financing institutions on longer term loans haveremained at 11-12% for several years. Should current high rates of inflationpersist for some time, it is likely that the long-term interest rates wouldalso be adjusted upwards. However, India has traditionally been a low-inflation country, and the authorities have demonstrated their ability to dealrapidly with inflationary surges in the past.

2.22 The Capital Market. Direct issuance of shares and debentures forsubscription by the public and by institutions has been a comparatively minorsource of investment financing for private industry. Total capital issuesby non-government firms have generally accounted for only about 5% of privateindustrial investment and are equivalent in size to only about one fifth ofthe disbursements by the term-financing institutions. In 1977/78 and 1978/79,the capital market was somewhat more active. Total capital issues 2/ roseby 65% in 1977/78 to Rs 1,355 million, partly because a number of companiesneeded to dilute foreign shareholdings to comply with new foreign investmentregulations. Of this total Rs 794 million was in new ordinary and preferenceshares, Rs 206 million in rights issues and Rs 355 million in debentures.Although total capital issues in 1978/79, at Rs 1,145 million, were 15%lower than in the previous year, the total was higher than in any of theearlier years. The higher level of activity in the capital market was alsoencouraged in part by the lowering of interest rates on fixed deposits and

1/ Measured by the consumer price index.

2/ Excluding bonus shares for capitalization of reserves.

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concessions extended in the 1978 budget for investments in new issues. Withworsening economic conditions and rising interest rates, capital issue activ-ity declined substantially in 1979/80. During the first six months of the

year total capital raised was only Rs 243 million compared to Rs 712 millionin the corresponding period of the previous year. The index of ordinary shareprices (1970/71 = 100) rose by 21.4 points in 1978/79 to reach 150.5. However,it fell to 140 by October 1979 and continued to drop since then. Because ofthe thinness of the market for equity shares, almost all issues are under-written and frequently the underwriters have to take up part of the issue.With public demand for share and debenture issues likely to remain weak,private industry is expected to rely even more heavily on the financialinstitutions for investment finance over the next few years.

III. INSTITUTIONAL DETAILS OF ICICI

Ownership, Organization and Staffing

3.01 Share Capital and Ownership. ICICI's original paid-in sharecapital of Rs 50 million has been gradually increased to Rs 225 million atpresent. Annex 1 shows the holdings of ICICI shares by 2,422 shareholders.

Of the Rs 75 million increase in share capital that has taken place since1976, the bulk has been subscribed by ICICI's public sector shareholders,which are mainly government owned banks and insurance companies. Conse-quently the public sector holding has increased from 75.6% to 80.8% anddomestic private sector holdings have fallen from 10% to 7.8%. Similarly,the holdings of ICICI's foreign shareholders have declined from 14.4% in1976 to 11.4% in 1979, as a result of their not subscribing to rights issues.As the public sector holds more than 50% of its shares, ICICI is considereda government company in terms of the Companies Act. However, this classi-fication does not affect ICICI's operational autonomy except in respect ofthe procedures for appointing auditors (para 3.10).

3.02 Board of Directors and Management. ICICI's Board remains competentand experienced. Mr. James S. Raj, who succeeded Mr. H.T. Parekh as Chairmanin 1978, resigned in September 1979, but remained a member of the Board untilhis death in January 1980. He was succeeded as Chairman by Mr. S.S. Mehta,who retains the post of Managing Director with responsibility for all oper-ational aspects of ICICI. Of the fifteen member Board, eleven members havebeen appointed since 1976, including five in 1979. The Board members repre-sent the Government of India (2), public financial institutions (2), theforeign shareholders (2), the professions and business (7), ICICI (2). Theformer General Manager, Mr. S. Kumarasundaram, was appointed as a directorin 1978 but retains full time executive responsibilities under the ManagingDirector. The Board, which continues to meet regularly with good attendance,sets ICICI's overall financial and operational policies and decides on project

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proposals above Rs 2.5 million. 1/ Mr. S.S. Nadkarni, who was appointedGeneral Manager in 1978, leads a capable middle management.

3.03 Staff. At September 30, 1979, ICICI's staff numbered 595, includ-ing 244 professionals, compared to a total of 187 professionals in September1976. New staff members were assigned to support departments as well as oper-ating departments, including the three regional offices, where professionalstaff now number 31. The overall quality of ICICI's staff remains high.Salaries are competitive with other financial institutions and banks andtraining and housing benefits provide further incentives. Staff morale isgood and turnover remains low: about 40% of professional staff have workedat ICICI for ten years or more. ICICI intends to increase its staff as neces-sary to cope with the expansion of its operations and does not anticipate anydifficulties in attracting suitably qualified applicants.

3.04 Organizational Structure. ICICI's organizational structure has con-tinued to develop soundly as its operations have grown. Mr. S.S. Mehta asManaging Director and Chairman of the Board is the chief executive officer,but works closely with the Executive Director and the General Manager in theday-to-day management of the corporation. The Executive Director has primaryresponsibility for finance, including resources, follow-up and the economicsdivision, while the General Manager is primarily responsible for projects andmerchant banking, development and market research, secretarial and the regionaloffices. A next level of management consists of five officers, including adeputy and an assistant general manager. In 1978, ICICI created five groupmanager positions, each with responsibility for two operating or supportdivisions, which enabled ICICI to combine divisions with complementary activ-ities under one manager. The role of the regional offices has been expandedwith the objective of making them self-sufficient in appraisal, 2/ follow-upand legal work. The Delhi office also fulfills a valuable function in liaisonwith Government and is headed by a senior officer of group manager level.

Operating Policies, Procedures and Standards

3.05 Operating Policies. While ICICI has no formal policy statement,its Memorandum of Association, together with Government guidelines and theresolutions of the Board over time, have provided a satisfactory policy frame-work for ICICI's operations. The pattern of ICICI's industrial financinghas tended to follow the investment priorities deriving from the evolutionof India's industrial development strategy (para 2.08). ICICI has directedits financial support mainly towards private industry and towards the develop-ment of non-traditional and technologically more advanced subsectors. Never-theless, ICICI has assisted a number of clients in the more traditional sub-sectors and has played an important role in promoting improvements in product

1/ Smaller loans up to Rs 25 million per month are approved by the ManagingDirector. An investment committee of the Board headed by the Chairmandecides on debenture and share sales.

2/ Regional offices now process project applications except in cases wherespecialized technical or marketing knowledge is required.

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quality and productive efficiency in these subsectors. In 1977, ICICI's

Board approved a Statement of Financial and Operating Strategy which set outits broad intentions in lending and specifically identified the six priorityareas on which it would concentrate: (a) export industries; (b) power and

transport; (c) agricultural inputs and outputs; (d) industries basic toindustrial expansion; (e) mass consumption goods; and (f) balancing and

modernization projects. The statement also noted ICICI's commitment to

assistance in the designated backward areas and to assist new entrepreneurs.Since 1977, over 90% of ICICI's assistance has been for projects that fall

within the identified priorities. ICICI's decisions on exposure in individual

companies continue to be made on a case by case basis. At September 30,1979, there were 19 companies in which ICICI had an exposure 1/ amountingto more than 10% of its equity; exposure in the largest of these amounted to

22% of ICICI's equity. In all of these cases, the companies are performing

satisfactorily and are regular in meeting their debt service obligations.ICICI considers that the six priority areas listed in its present statement

of financing strategy continue to provide an appropriate focus for its opera-

tions over the next few years. Nevertheless, ICICI has recently updated this

statement to reflect in greater detail certain aspects that warrant increased

emphasis within the priority areas, to reflect ICICI's plans to devote in-creased attention to the development of the petrochemical industry, and toinclude a description of its strategy for the mobilization and utilization

of different sources of funds (para 5.05).

3.06 Terms of Assistance. For both domestic and foreign currency loans,ICICI's standard rate of interest has been set at 11% p.a. since 1975. How-ever, funds deriving from ICICI's 1978 eurodollar borrowing have been relentat a floating rate of interest of 1.5% above LIBOR. In the case of foreigncurrency loans, subborrowers bear the foreign exchange risk on the currenciesdisbursed. Foreign currency loans to designated backward areas generallyreceive a 1% interest rate concession and domestic currency loans a 1.5%concession. 2/ An additional 1% p.a. is charged on loans to companies whoseshares are not listed on a stock exchange. 3/ With inflation averaging about5% p.a. between 1976 and 1979, ICICI's interest rate has been significantlypositive in real terms. While inflation is running at above 15% in 1979/80,

on the basis of the Bank's present inflation projections for India, 4/ ICICI's

1/ Approvals, net of cancellations and repayments, but including guarantees.

2/ A further exemption exists in respect of rupee loans made under IDBI'sSpecial Modernization Scheme, which bear an interest rate of 7.5% p.a.This scheme is intended to encourage replacement of out-of-date equip-ment in certain specified industries.

3/ The surcharge is designed to compensate ICICI for not having the oppor-tunity to participate in equity. It also acts as a marginal incentiveto companies to diversify their ownership.

4/ Latest Bank estimates are 10%, in 1980, 7% in 1981-83, and 5% p.a.subsequently.

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interest rates are expected to remain positive in real terms over the averagelife of subloans made in 1980 and subsequently. ICICI also participates inthe equity of its clients and reeerves the right to convert up to 20% of itsdomestic currency loan amount to ordinary shares. ICICI continues to charge a1% p.a. commitment fee on foreign currency loans and a commitment fee, rangingbetween 0.25% and 1% p.a., on domestic currency loans. ICICI's standard lend-ing terms provide for loan maturities of up to 15 years including up to 3years of grace. However, in special cases, including rupee loans for projectsin backward areas, ICICI may provide maturities of up to 20 years and graceperiods of up to five years.

3.07 Joint Financing. In accordance with agreements reached with theother all-India institutions, ICICI refers project proposals in excess ofRs 30 million to the inter-institutional Meeting (IIM) 1/ for joint financing;about 65% (by amount) of its business in 1978 and 1979 was jointly financedwith one or more of the other members of the IIM. This enables membersof the IIM to limit their individual exposures, while ensuring that adequatedebt and equity financing can be provided for the project. The IIM, whichcoordinates the activities of the all-India term financing institutions isattended by the institutions' chief executives under the chairmanship of IDBI.The meeting discusses and decides on: (a) policy matters, including alloca-tion of institutional finance between various sectors in line with Governmentpriorities; (b) each member's contribution to the financing of large projects;(c) waiver of conversion options; and (d) promoters contributions to projectcost. Senior executives of the member institutions also meet to review loanconditions, project appraisal and follow-up issues and to select the "lead"institution for each project. 2/ The designated lead bank is responsible forappraisal and follow-up work on projects assigned to it. However, reportsand issues in each case are discussed at the meetings and each member institu-tion has the right to submit to its Board a recommendation by its own staffand to decline to participate in individual projects. ICICI has continuedto make a positive contribution to the development of the inter-institutionalsystem and has contributed significantly in upgrading the appraisal andfollow-up' standards of the other lending institutions. In addition, ICICIhas recently initiated a system of participation certificates under whichthe lead bank will complete the appraisal and documentation on each loanbefore offering to sell participations to other institutions. 3/ This systemhas the advantage that the borrower contracts with only one institution andit is expected to reduce delays in legal documentation and procedures. Thesystem has been approved by the IIM for loans of between Rs 30 and Rs 50 mil-lion and is expected to be implemented in 1980.

I/ Coordination of activities between the all-India and State level insti-tutions, including joint financing operations, is handled at separateInter-Institutional Group (IIG) meetings.

2/ Usually on the basis of the specialized technical or marketing aspectsof the project.

3/ The certificate will be sold without recourse to the lead bank so thatthe risk will continue to be shared by all participants.

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3.08 Appraisal and Follow-Up Standards. ICICI's appraisals continueto be of a high standard and incorporate a thorough treatment of technical,financial, market and economic aspects. Follow-up is conducted by fiveseparate units: implementation, which is concerned with supervision of newclients; regular follow-up, for existing clients; rehabilitation, for prob-lem projects; the small loans section, for all loans on which the outstandingbalance is below Rs I million or investment is below Rs 0.5 million; and thecoordination section that is responsible for coordination with other depart-ments of ICICI, the Government and other financial institutions. Clientssubmit detailed quarterly progress reports to ICICI for review, and follow-uppersonnel conduct about 300 visits per year to the 1,144 projects under super-vision. Problem projects are visited at least once a year and a satisfactorysystem of follow-up reports and regular management review exists. ICICI alsoreserves the right to appoint a director on its clients' board and has doneso in 111 cases.

3.09 Procurement and Disbursement. ICICI normally insists on competitivequotations from at least three reputable suppliers. The price and suitabilityof plant and equipment is checked by ICICI staff and compared, where possible,with similar plant in existing projects. ICICI's procurement proceduresare appropriate given the nature of its business. Disbursement proceduresalso remain satisfactory. In 1975, ICICI started opening its own letters ofcredit as a service to clients. 1/

3.10 Audit. As ICICI is considered a Government company (para 3.01),GOI, on the advice of the Comptroller Auditor General, appoints ICICI's jointauditors. As GOI follows the practice of appointing new auditors about everythree years, Lodha and Company, who were appointed in 1976, were replaced byK.S. Aiyer and Company in 1979. However, continuity is assured by staggeringthe terms of the two auditors and S.B. Billmoria and Company, who wereappointed in 1977, remain joint auditors for the time being. ICICI'saccounts for 1978 were presented without qualification.

Relations with Government and Business

3.11 Relations between GOI and ICICI continue to be good. Through theGOI representatives on its Board and its regional office in Delhi, ICICI keepsin close touch with GOI officials. ICICI is also represented on GOI commit-tees and public bodies concerned with industrial investment, including theCapital Goods Committee. Within the framework of overall Government policy,ICICI continues to enjoy full autonomy. ICICI also enjoys cordial relationswith the business community. Through formal and informal contacts, ICICImaintains its position as a link between business and government. In 1979,to mark the twenty-fifth anniversary of its establishment, ICICI hosted asymposium, attended by senior Government officials and a broad section ofthe Indian business and financial community. The papers presented at thissymposium were of a high standard, and the symposium offered a very valuableopportunity for the interested parties to exchange views on some of the major

1/ In 1979, the Bank granted ICICI the power to amend letters of creditwithout prior bank approval in all cases except for an increase inamount.

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issues affecting industrial development in the 1980's. Copies of these papersare included in the project file (Annex 4, Al).

IV. PAST OPERATIONS AND PERFORMANCE

Financing Operations

4.01 Overall Operations. ICICI's total net approvals increased fromRs 972 million in 1976 to Rs 1,379 million in 1978. In the first nine monthsof 1979, total net approvals amounted to Rs 1,535 million and were expectedto reach Rs 1,990 million by the end of the year, an increase of 39% over thefigure for 1978 (Annex 3, Table 2). The sharp increase in approvals has notyet been fully reflected in the level of commitments, which rose from Rs 905million in 1976 to Rs 971 million in 1978 and Rs 1,113 million in the firstnine months of 1979, resulting in a doubling of the backlog of uncommitteednet approvals from Rs 1,078 million in 1976 to Rs 2,039 million at Septem-ber 30, 1979. Disbursements increased from Rs 664 million in 1976 to Rs 1,064million in 1978 and are expected to reach Rs 1,260 million for 1979. ICICI'sloan disbursements account for about 15% of those of all-India financialinstitutions and about 5% of total private industrial investment in India.

4.02 Lending Operations. From 1976 to 1978, domestic currency loanapprovals increased from Rs 425 million to Rs 1,029 million, while foreigncurrency approvals declined from Rs 415 million to Rs 242 million. Thetrend to increased volumes of domestic currency loans reflects the improvedaccess of ICICI to domestic resources (para 4.20). The decline in foreignexchange approvals in 1977 and 1978 was due to the increased availability offree foreign exchange for certain categories of capital goods imports andreluctance to assume the relatively high level of foreign exchange risk inhe-rent in borrowing Bank and other foreign resources from ICICI. 1/ However, inthe first nine months of 1979, ICICI's foreign currency approvals increased toRs 505 million, partly because of the introduction of the Bank's specialcurrency disbursement scheme for DFCs, which reduced the perceived exchangerisk and enabled ICICI to place Bank funds more easily. Domestic currencyloans for the first nine months of 1979 remained at a high level (Rs 921.9million) and are expected to reach Rs 1,350 million for the year, while for-eign currency loans are expected to reach Rs 645 million by the end of 1979.

4.03 Investments and Guarantees. ICICI's direct subscriptions and under-writing of share and debenture issues accounted for 11% of its total approvalssince inception and 7% of the total in the first nine months of 1979. Theseinvestment operations increased from Rs 73 million in 1976 to Rs 105 millionin 1978 and Rs 114 million in the first nine months of 1979. About 75% ofICICI's investment operations derive from underwriting activities. Of the

1/ ICICI's sub-borrowers assume full exchange risk. At September 30, 1978,75% of ICICI's foreign obligations were denominated in D. Marks, SwissFrancs or Japanese Yen. In the 15 months from June 30, 1978, theseobligations appreciated by 13% in rupee terms (24% in US$)

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Rs 1,024 million in underwriting approvals since inception, ICICI had dis-bursed Rs 500 million at September 30, 1979. ICICI's guarantees, which arelargely issued to foreign suppliers, constitute a very small part of its totaloperations; about 1.5% of total net approvals since inception. Since 1976,ICICI has not committed itself to any guarantees and has disbursed only Rs 0.5million against previously issued guarantees.

4.04 Merchant Banking. Through its merchant banking division establishedin 1973, ICICI has continued to broaden the range of financial services offeredto clients. These services include the management of underwritings, debentureand share capital issues, private loan placements, advice on mergers andacquisitions, and other corporate financial services. Growth of ICICI's mer-chant banking activities has been particularly rapid over the last few years.Since 1977 it has successfully managed 23 share and debenture issues and pri-vate loan placements totalling Rs 1,066 million, on which it earned fees ofRs 4.1 million. It has a further 19 proposals on hand, involving Rs 1,109million. In 1979, the merchant banking division and ICICI's legal staff man-aged, for the first time in India, a debenture issue secured by an equitablemortgage, which substantially reduced the revenue duties payable. The sameissue also involved the use of a new instrument in India; the rights deben-ture. 1/ Because of its innovative approaches and long experience and closecontacts in the financial field, ICICI is now generating increasing demandfor its merchant banking services, particularly from sponsors of large newventures. These services are also providing a useful complement to itsother project promotion activities (para 4.10).

Characteristics of Projects Financed

4.05 Distribution of Assistance. At September 30, 1979, ICICI hadapproved assistance totalling Rs 12.2 billion for 2,564 projects. While theseprojects were distributed over a wide range of different industrial subsectors(Annex 3, Table 3), more than half of total financing has gone to the engineer-ing industries, including metal and metal products, mechanical and electricalmachinery and transport equipment (36% of the total), and to the chemicaland petrochemical industries (19% of the total). Other subsectors receivinga significant proportion of ICICI financing were textiles (11%), pulp andpaper (6%) and cement (5%). This distribution reflects ICICI's concentrationon the non-traditional and technologically more advanced industries. Some36% of project financing was provided for new or diversification projects,with the remainder going for capacity expansion, balancing and modernizationprojects. ICICI clients are predominantly medium and large sized companies,since small industries are supported by specialized institutions at the Statelevel and by the commercial banks, whose appraisal procedures and lendingterms are better adapted to small industry financing. 2/ During the last

1/ In effect an issue of debentures offered preferentially to existingshareholders.

2/ In the past, the Bank Group has made one credit and one loan to IDBIto help refinance small industry loans made by the State FinancialCorporations.

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three years, ICICI's average financial assistance per project was Rs 7.2 mil-lion, corresponding to about 20% of total project investment costs. About86% of ICICI's financing has gone to private sector companies and the balanceto cooperatives and joint sector and public sector companies. The geographicdistribution of ICICI's clients remains somewhat skewed towards the moreindustrialized states in Western India. However, ICICI has succeeded inexpanding its clientele in the Eastern and North Eastern regions of India.These two regions now account for almost 20% of ICICI's financing, compared toonly 8% in 1976. There has been a corresponding reduction in the proportionof financing going to Western India (from 53% to 48%) and to Southern India(from 25% to 19%), with the proportion going to Northern India (14%) remainingunchanged. This shift has been due in part to ICICI's participation in jointfinancing with other lending institutions.

4.06 Project Performance. Of the ICICI assisted projects completedin the period January 1977 to September 1979, only 25% were completed onschedule, and one third were delayed by more than one year. About half werecompleted within the original cost estimate, but almost a quarter had costoverruns of more than 25%. One reason for both completion delays and costoverruns were the difficulties experienced by promoters in putting togethertheir financing. The streamlining of procedures for joint financing among theall-India term financing institution is helping to reduce this problem.Another important factor was delays in obtaining investment licenses, importlicenses and other central and State government clearances. The recentliberalization and streamlining of licensing procedures (paras 2.11 and 2.12)should help reduce the severity of such delays in future. In general, ICICI'sclients are reasonably profitable. For a sample of 417 ICICI clients analyzedin 1977 and 1978, nearly all companies other than the sugar manufacturers,which were affected by price and distribution controls, showed positivepre-tax profits. For the full sample, the ratio of after-tax profits to networth averaged 10.5% (Annex 3, Table 3).

4.07 Economic Impact. Since 1973, ICICI has been carrying out a detailedeconomic rate of return (ERR) analysis for all projects for which its totalfinancial assistance exceeds Rs 5 million and for projects with capital costsexceeding Rs 25 million. 1/ Between August 1973 and June 1976 the ex-anteERRs, calculated for 86 projects, averaged about 20%. In 1978 and the firstnine months of 1979, ERRs were calculated for 62 projects out of the 337 proj-ects approved in the period. The weighted average ERR for these projects wasabout 23% with a range of 10% to 80%. The highest ERRs were recorded byprojects in the fields of automobile ancilliaries, machinery manufacturingmetal products and electrical equipment. For these projects domestic outputprices were generally below world prices. The lowest ERRs (averaging 17%)were recorded for projects in the fields of chemicals and petrochemicals.ICICI has also been directing an increasing proportion of its financing toprojects located in the designated backward areas. In 1978 and 1979 about

1/ For smaller projects, ICICI continues to calculate the effective rateof protection and domestic resource cost except in the case of balancingand modernization projects with assistance of less than Rs 1 millionand service related projects.

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40% of total financial assistance approved was for projects in the backwardareas, compared to 27% for ICICI's total portfolio. An estimated 50% ofICICI's clients are exporting. Exports of 207 large exporters among ICICIassisted companies amounted to about Rs 5 billion in 1977/78. The productgroups showing the highest volumes of exports were automotive products,cotton textiles, chemicals, machinery and metal products. In total, exportsof ICICI assisted companies amount to 15-20% of India's total exports ofmanufactures. The employment impact of ICICI assisted projects has also beensignificant. The average investment cost per job created is estimated atabout US$25,000 for projects approved in 1977 to 1979. This appears reason-able bearing in mind that ICICI's clients are mostly medium-sized and largercompanies operating in the modern and technologically more advanced subsectors.Moreover, it is important to note that about 30% of ICICI's assistance recentlyhas been for balancing and modernization projects, which are directed more tomaintaining existing employment rather than creating new jobs.

Other Developmental Activities

4.08 In addition to its mainstream lending and investment operationsand merchant banking activities, ICICI is undertaking a broad range of com-plementary activities and services so as to enhance its overall impact onindustrial development. These activities include (i) undertaking industrialsubsector and policy studies; (ii) identification and promotion of new proj-ect ideas; (iii) backward area development programs; and (iv) training andadvisory support for other domestic and foreign financial institutions. Mostof these activities have been initiated in the last 5-6 years following ajoint Bank/ICICI study of ICICI's developmental impact in 1973. Both theBank and KfW have been encouraging ICICI to expand selectively these activ-ities in the context of recent loans.

4.09 Industrial Studies. ICICI's first major industrial policy study,focussing on the problems and prospects for manufactured exports, was ini-tiated under the eleventh IBRD loan. Its findings, which were summarized inthe appraisal report for the twelfth loan, have proved useful inputs to gov-ernment committees reviewing the export incentive system. In the contextof the twelfth loan, ICICI agreed to carry out studies of selected engineer-ing industries, starting with a study of automotive products subsector. Thedraft report of this study is currently under discussion by the Bank and ICICIand copies have been provided to GOI. In addition to these major studies,ICICI has also completed a number of shorter studies on, for example, priceand distribution controls in the sugar and cement industries, the impact ofindustrial licensing, and the economics of small scale cement and paper plants.These studies have been well received by various government committees andsome of their recommendations have already been implemented. ICICI also par-ticipated in a Bank study of the cement subsector. As explained in para 4.13,ICICI intends to continue its program of industrial studies over the nextfew years.

4.10 Project Promotion. ICICI formally established a new project identi-fication and promotion unit in 1974. This unit now forms part of the Develop-ment Department and has four full time professionals assigned to it. The two

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projects under implementation are an acetelyne black project for batteries,and a project to make industrial cutting tools. Another 8 projects are atan advanced stage of preparation, with interested entrepreneurs located andforeign or local collaborators identified. These include several projects toproduce industrial chemicals (acetone, betanapthol, polyvinyl alcohol) andautomotive components (tie rods, shock absorbers), and projects to producejewel bearings, insulators and carbon products. Another 6 projects are atearlier stages of preparation. In addition, ICICI has actively participatedin the establishment of a Foreman Training Institute and a private companyoffering pilot plant facilities on a commercial basis to test out new indus-trial processes. While the promotion unit has performed well, progress hasbeen slower and more manpower intensive than anticipated.

4.11 Backward Area Development. ICICI activities in this field havecomprised (i) participation in a series of area potential studies focussingon availability of raw materials, infrastructure, human skills and markets;(ii) collaboration with IDBI, IFCI and state-level financial institutions insetting up state technical consultancy institutions to assist new entrepreneursand (iii) helping to organize and finance voluntary rural development agenciesusing grant funds made available by KfW. Overall ICICI has managed to achievesignificant progress in this field using relatively small manpower and finan-cial inputs.

4.12 Support for Other Institutions. In addition to its general collabo-ration with and assistance to other Indian financial institutions through theregular IIM and IIG meetings, ICICI has extended training facilities to thestaff of IDBI and to several of the state-level financial institutions. ICICIalso runs an annual training program for the personnel of development banks inother countries. Recent participants have come from Jamaica, Trinidad, Kenya,Somalia, Malaysia, Panama, Bolivia, Sri Lanka and Afghanistan. ICICI has alsoseconded staff members as advisers to DFCs in several other countries, and iscurrently undertaking a two year consultancy assignment to assist the newNational Development Bank of Sri Lanka.

4.13 Focus of Future Activities. As ICICI's developmental activitieshave expanded in scope and complexity, ICICI's management has recognized theneed to plan carefully their future expansion to ensure that: (i) theseactivities are well integrated with ICICI's mainstream financing activities;(ii) limited staff resources are used as effectively as possible; and (iii)efforts are focussed on addressing problem areas that are likely to have asignificant impact on industrial development or make an important contribu-tion to the future development of ICICI's operations. Tentatively, ICICI hasselected the following problem areas for primary focus over the next few years:(i) addressing major industrial bottlenecks; (ii) encouraging improvements inindustrial efficiency and export performance; (iii) developing its capacityto provide training and consultancy services to DFCs in other countries. Twomajor studies would be undertaken aimed at addressing the problems faced byindustry because of recurring severe power shortages. The first would focuson the recent and potential responses by industry to sharply increased energycosts and reduced power supplies. It would cover, for example, opportunitiesfor energy conservation and use of alternative fuels, economics of installing

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back up generating capacity, and rescheduling of operations to take bestadvantage of power availability. The second would focus on identifying pos-sible bottlenecks and constraints in the supply of equipment and componentsfor expansion of the power generation, transmission and distribution system.During negotiations ICICI presented its initial proposals for these studiesand confirmed that it would continue to discuss with the Bank the design ofmore detailed terms of reference. ICICI also confirmed that it would con-tinue to discuss with the Bank possible extension of its studies of the auto-motive sector, which might include further analysis of the subcontractingand component supply relationships between small and large companies.

Quality of Portfolio

4.14 Loans. Annex 3, Table 4 shows the trend in ICICI's arrears from1973 to September 1979. Arrears over this period have shown a significantincrease: at September 30, 1979, total arrears from 171 companies amounted toRs 169 million, compared to Rs 40.9 million for 42 companies in 1973; principalin arrears as a percentage of the loan portfolio was 2.1%, compared to 1.6%;and the percentage of the portfolio affected by arrears was 15.6%, compared to7.1%. However, the bulk of the increase took place before 1976 and arrearsratios since then have shown comparatively little change: the 2.1% of prin-cipal in arrears at September 30, 1979, compares with 2.0% in 1976, 1.9%in 1977 and 2.0% in 1978, while the affected portfolio of 15.6% compareswith 17% in 1976, 17.6% in 1977 and 13.5% in 1978. The continuing relativelyhigh level of arrears is due in part to the effects on ICICI's clients ofcontinuing power shortages and an increase in strike actions, particularly in1979. At the same time, the effect of the recent rapid increases in priceson working capital requirements, combined with credit restrictions imposed bycommercial banks, has had a negative effect on clients' liquidity and hamperedICICI's efforts to reduce the level of arrears. Even with improvement inthese factors, the effect on arrears will not be felt immediately and ICICIexpects to maintain its current collection ratio of about 90% of amountsfalling due, which is satisfactory.

4.15. Annex 3, Table 5 shows the characteristics of ICICI's arrears atSeptember 30, 1979. The industries accounting for the major portion ofarrears were: spun pipes (18%), paper and paper products (11%), sugar (10%),plastics (8%) and mini-steel plants. In the case of spun pipes and sugar,ICICI's arrears reflect industry-wide problems, but in the other industriesthey reflect the specific problems faced by ICICI financed units. Of the 171companies in arrears, 42 representing 16% of the total, were considered to befacing temporary difficulties; 49 (19%) were in need of a rescheduling toovercome temporary financial difficulties; 32 (10%) were sugar units; and 48(55%) faced long term management, financial, marketing or technical problems.Of the 48 facing long term difficulties, ICICI had devised or was in theprocess of implementing rehabilitation plans for 18 companies. In the remain-ing 30 companies, which represent 39% of the total arrears, ICICI could seelittle prospects for rehabilitation. About half of this amount is accountedfor by spun pipe units for which ICICI has initiated legal action for recovery.Improvement in the sugar industry awaits Government action on incentives andpricing. The age analysis of arrears reflects the large proportion of com-panies with long term problems: 53% of arrears were outstanding for more than

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two years, 25% for one to two years, 10% for six to 12 months, and 12% forless than six months. ICICI continues to discuss with the Government and with

the other financial institutions possible measures to deal with the companiesfacing lonig term problems. Recently the Government has introduced some addi-

tional financial incentives to encourage successful companies to take over

and reorganize companies in serious financial difficulties. However, it is

too early yet to judge how effective these measures will be.

4.16 Aks of December 31, 1979, ICICI loans to industrial concerns that

were considered of doubtful recovery amounted to Re 50.3 million. The aggre-

gate amouni: due from such companies was Rs 172.8 million in principal and

46.7 million in interest. Cumulative provisions against non-payment of

interest anounted to Rs 47.55 million at year end 1979. 1/ In the case of

principal amounts of doubtful recovery, ICICI allocates part of its annual

profits to a reserve for doubtful debts. As of December 31, 1979, this

reserve stood at Rs 54.5 million, equivalent to 1.1% of the outstandingportfolio. Following a case-by-case review of loans in arrears, including a

review of collateral securities, ICICI's auditors have agreed to the adequacy

of ICICI's reserves and provisions. ICICI is also involved in a major effort

to reduce arrears and senior management and the Board pay close attention to

the problem. Apart from close supervision of the clients in arrears, ICICIalso has been able to offer financial advice on restructuring or merging of

units, arrange short term working capital finance and has in some cases been

successful in restructuring companies under new management. While the level

of arrears is a matter for concern, ICICI is in control of the situation and

no change in the present approach is recommended.

4.17 Investments. At June 30, 1979, ICICI's equity portfolio comprisedordinary share investments of Rs 231.8 million in 346 companies and preferenceshare investments of Rs 97.9 million in 146 companies. Some 41% of the in-vestment portfolio was in companies operating profitably and paying dividends,19% was in companies under construction and 40% in companies experiencing

difficulties. 2/ This represents a deterioration in the portfolio since 1976,

when 50% of the companies were operating profitably and 29% were experiencingdifficulties. Nevertheless, the average market price of the ordinary shares

was 120% of book value, an improvement on the 1976 figure of 105% but still

less than the 1974 figure of 132%. The average dividend yield on the ordinary

shares was 6.3%, considerably higher than the 4.4% recorded in 1976. At

June 30, 1979, ICICI also held Rs 190 million in debentures, which yielded8.8%. In 1977,and 1978, ICICI disposed of share and debentures costing Rs

25.2 million, on which it realized a capital gain of Rs 22.7 million. ICICI's

overall investment portfolio continues to be sound and well managed.

1/ Since 1978, ICICI has adopted the practice of not recording as accruedincome interest due on certain loans of very doubtful. recovery;suchnon-alccrued amounts totalled Rs 28.5 million at year end 1979.

2/ ICIC] does not make provisions against the dimunition in the value of

its investments. However, capital gains from the sale of shares areheld in reserve which at September 30, 1979 amounted to Rs 49 million.This is an adequate cushion.

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Resources

4.18 At September 30, 1979, ICICI's resources totalled Rs 6.37 billion.Foreign exchange equivalent to Rs 3 billion (US$361.6 million), accounted for47% of the total, while domestic resources provided the balance of Rs 3.37billion, or 53%. ICICI's resource position is summarized in Annex 3, Table 6.

4.19 Foreign Currency. The bulk of ICICI's foreign currency resourceshave come from IBRD: of the total foreign exchange resources raised by ICICIup to September 30, 1979, the twelve Bank loans accounted for US$489.7 mil-lion, 1/ or 77%. Seventeen Kreditanstalt fur Wiederaufbau (KfW), lines ofcredit, totalling US$79.7 million equivalent, 2/ accounted for 13% and eightUnited Kingdom tied lines of credit for 6% of total foreign currency resources.The remaining 4% was made up of one USAID loan and two commercial borrowings:one Swiss Franc bond issue and a euro-dollar syndicated loan. During theperiod 1977-79, ICICI raised from official sources, one KfW loan forD. Mark 10 million (US$5.5 million) in 1979 and two UK tied credits total-ling E 10 million (US$21.5 million), in 1977 and 1978. ICICI was also ableto raise, under Government guarantee, a euro-dollar loan of US$20 million froma consortium of seven foreign banks. ICICI's attempts to mobilize foreigncommercial funds have been limited so far to the Swiss Franc bond issue andthe syndicated loan. In connection with the proposed thirteenth Bank loan,ICICI proposes to diversify its resources further by raising euro-currencyborrowings, probably in the form of syndicated loans (para 5.03). Annex 3,Table 7 gives details of the amounts, terms and conditions of ICICI's foreigncurrency borrowings.

4.20 Domestic Currency. The major part of ICICI's domestic currencyresources has been financed by the issue of bonds: of the total of Rs 3.76billion raised up to September 30, 1979, fourteen issues of ICICI debenturebonds have provided Rs 2.2 billion, or 58%. The remainder was provided by GOIand IDBI loans (28%) and shareholders' equity (14%) (Annex 3, Table 8). Since1975, ICICI has been able to issue bonds under government guarantee, which hasconferred on them the status of "approved security" and has enabled ICICIto tap institutional sources of funds. 3/ As ICICI has also been permittedto offer a slightly higher rate on its bonds than other government securities,its issues have been in demand and it was able to raise Rs 1,350 millionin five issues since 1977. Eight issues of special bonds against IDBI loanspermitted ICICI to raise a further Rs 455 million between 1977 and September30, 1979. In addition, in 1978, it initiated a scheme for accepting fixeddeposits from the public on an experimental basis. However, as ICICI does nothave an extensive network of branch offices, raising significant sums have notproved possible and the total raised by September 30, 1979 was only Rs 18.1

1/ Net of cancellations.

2/ At current rates of equivalent.

3/ Government regulated institutions such as insurance companies, provi-dent funds, trusts and commercial banks are compelled to hold approvedsecurities.

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million. ICICI intends to continue to issue debenture bonds to meet the bulkof its domestic currency resource needs. It also has undertaken, in conjunc-tion with an increase in the Bank's debt/equity covenant limit (para 4.23),to raise a total of Rs 72 million in new share capital in the period 1980-83.The deposit scheme will also be continued, but may temporarily be suspendedin view of high short term interest rates. In any event, it is not expectedto provide a significant source of new resources.

4.21 Although ICICI has increased its issue of bonds significantly since1975, its role in mobilizing primary savings remains limited. ICICI, likeother DFCs, largely tap resources which have already been mobilized by com-mercial banks and other institutions, primarily insurance companies. This isdue in part to the constraints ICICI's fixed onlending rates impose on therate it can offer to savers and the advantages other financial institutionsenjoy in this respect. Also, it is partly due to traditional investment habitsand the lack of a secondary market for debentures, which are major obstaclesin attracting funds direct from the public. Furthermore, RBI controls alldebenture issues by determining amounts, maturities and rates of interest,thus limiting ICICI from increasing the yields on its debentures to make themmore attractive to the public. At the project level, however, ICICI which onaverage supplies about 20% of project cost in assistance, is able to attractfour rupees from other sources, including promoters, for every rupee it grantsin assistance. Indirectly, ICICI also encourages some mobilization of savingsthrough persuading clients to make public offerings of shares or debenturesand through its merchant banking and underwriting activities. ICICI also actsas a catalyst for investment through joint financing activities with foreignfinancial institutions such as CDFC, DEG 1/ and IFC.

Financial Performance

4.22 Profitability. Annex 3, Table 9 shows income statements from 1974to September 1979. ICICI's profits before taxes and provisions increasedin line with the growth in total assets between 1977 and 1979. However,net profits after taxation increased more sharply, from Rs 38 million in1976 to Rs 70.6 million in 1978 and an expected level of Rs 81 million in1979, reflecting ICICI's reduced taxation liabilities. Increased allowances,notably the tax free ploughback of a portion of pre-tax profits, 2/ reducedICICI's taxation rate from 44% in 1976 to an estimated 32% in 1979. As aresult, even after an increase in share capital, ICICI's return on equityincreased from 12% in 1976 to 16% in 1978. The rate of dividend, which waslast raised in 1976, was maintained at 12% through 1978, allowing a satisfac-tory retention of profits of 64% in 1978, compared to 53% in 1976. Administra-tive expenses were held at 0.5% of average total assets throughout the 1977-79

1/ Commonwealth Development Finance Company (CDFC) and Deutsche Gesellschaftfuer Wirtschaftliche Zusammenarbeit (DEG).

2/ This provision permits ICICI to deduct up to 25% of its pre-tax profitstransferred to a special reserve account from its taxable income. In1979, this percentage was increased to a maximum of 40%.

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period. Although margins continued to be squeezed by the increase in the aver-

age cost of borrowings and the growing volume of ICICI's loans at concessional

rates, this was offset by the relatively larger volume of domestic currencylending, which carries a larger margin than foreign currency loans. 1/ As aresult, the average spread on lending operations increased from 2.4% in 1976to 2.6% in 1978, which is satisfactory.

4.23 Capital Structure and Liquidity. Annex 3, Table 10 shows ICICI's

balance sheets at December 31, 1974 to 1978 and at September 30, 1979. Totalassets increased from Rs 3.3 billion in 1976 to Rs 5.9 billion in September1979, partly as a result of parity changes in ICICI's obligations in foreignexchange. 2/ The level of shareholders' equity remained at about 11% of theloan and investment porfolio. ICICI's debt/equity ratio ranged from 9:1in 1976 to 8.8:1 in 1978: the contractual limit was 9:1. However, in 1979,

the Bank revised this limit to 11:1 on the understanding that ICICI wouldraise Rs 72 million in share capital by 1983. The debt/equity ratio atSeptember 30, 1979, was 9.3:1, well within the new contractual limit. ICICI's

debt service coverage performance has been adequate: the debt service coverageratio increased from 1.08:1 in 1976 to 1.28:1 in 1978, which is an acceptablelevel.

4.24 Market Quotation. The net book value of ICICI's shares at December31, 1978 was Rs 216.49, compared to a nominal value of Rs 100 per share.However, from January 1979 to September 1979, the quoted share price for ICICIshares ranged between Rs 102.0 and Rs 111.5, or about 47% to 51% of net bookvalue. The low share prices reflect poor stock market conditions and thehigher effective yields obtainable on alternative investments.

V. FUTURE OPERATIONS AND RESOURCE NEEDS

Operations Forecast

5.01 Annex 3, Table 11 shows ICICI's forecast of approvals, commitmentsand disbursements for the period 1979 to 1983. In view of the difficulteconomic conditions prevailing in 1979 and the expectation that growth of theeconomy will be relatively modest in 1980 (para 2.17), ICICI has based itsoperational forecast on conservative assumptions. Total net approvals areprojected to grow by only 8% to Rs 2,150 million in 1980 compared to 39%growth in the previous year. Foreign exchange loan approvals are expected to

1/ In addition, the impact of the 1974 and 1975 lending rate increases becamefelt in this period.

2/ ICICI translates its obligations and its clients obligations in foreigncurrency at the rate ruling on the date of the balance sheet. Becauseof changes in the parity of the rupee, the translation of these obliga-tions has increased. Prior to 1975, translation was at the rate rulingon the date of disbursement.

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remain at the same level in 1980. After 1980, ICICI expects that both local

currency and foreign exchange approvals will grow by about 10% p.a. as theeconomy recovers, This compares to the compound growth rate of almost 30%p.a. in total approvals experienced between 1976 and 1979. With the tighten-ing up of availability of free foreign exchange for capital goods importsexpected to continue, ICICI believes that demand for foreign exchange loanswill stabilize at about 30% of total approvals. Because of the considerablebacklog of uncommitted approvals on hand, and the expectation that stream-lining of government licensing procedures will reduce commitment delays, ICICIis projecting a more rapid growth of local currency commitments of 26% in

1980, and 20% in 1981, 14% in 1982, and 15% p.a. in 1983. Foreign exchangecommitments are projected to increase from the 1979 level of Rs 439 million(US$53 million) to Rs 550 million (US$66 million) in 1980, and increase toRs 660 million (US$80 million) in 1981 and to Rs 790 million (US$95 million)in 1982. With some time lag, disbursements are expected to follow a fairlysimilar pattern to commitments. Bearing in mind the increased inflation ratescurrently being experienced in India and in the countries that are the prin-cipal suppliers of capital goods to industry, ICICI's operational forecastmay prove to be overly-conservative.

Resource Requirements

5.02 Foreign Currency. As of October 30, 1979, ICICI has foreign cur-rency resources available for commitment of US$38.1 million, including Bankfunds of US$15.2 million. After taking into account additional funds ex-pected to be made available by KfW 1/ and forecast commitments, ICICI anti-cipates that by June 30, 1980 it wiTl have only US$8 million available forcommitment. The proposed Bank loan would partially cover ICICI's additionalforeign exchange resource requirements in the period up to September 30, 1982(i.e., about 2 years after loan effectiveness). Commitments for this periodare expected to amount to about US$190 million, resulting in a resource gapof about US$182 million to be financed by the Bank, KfW, UK tied credit lines,and additional commercial borrowings. As explained in para 5.04, ICICI willneed to blend the commercial funds with its other foreign exchange resourcesin the ratio of about 30:70 in order to provide an appropriate balance ofmaturities, interest rates and currency risks to its clients. This wouldsuggest commercial borrowings of about US$55 million. Since about US$27million is expected to be available from KfW and UK credit lines, a Bankloan of about US$100 million would be needed to complete ICICI's resourcerequirements.

5.03 Commercial Borrowings. Following consultations with a wide selectionof international banks on conditions in the euro-market, ICICI concludedthat it would be inadvisable to raise as much as US$55 million in one loan.

1/ KfW funds used in this context include direct loans and D. Mark "revolv-ing funds", which represent KfW loan funds repaid by clients prior toICICI's obligation to repay KfW and relent. These funds can be "revolved"as many as four times as KfW maturities range from 30 to 50 years.

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Instead, ICICI has concluded arrangements to raise about US$30 million equiv-alent in 1980 and intends to approach the market for further borrowingstowards the end of 1981. The initial borrowing is a syndicated loan, whichincludes a currency mix of US$20 million and US$10 million equivalent inDeutsch Marks. 1/ Terms and conditions negotiated for the loan are: interestat 1/2% over LIBOR for five years increasing to 5/8% thereafter, a 10 yearmaturity with four year's grace and a 30 month drawdown, a commitment fee of3/8% and an initial management fee of 3/8%.

5.04 Blending Arrangements. Since ICICI's commercial borrowings have afixed repayment schedule, limited maturity, restricted drawdown period andcarry a floating interest rate, ICICI can only use these funds by themselvesin a minority of its operations (e.g., comparatively small and straightforwardbalancing and modernization projects). In many cases, ICICI will need to makeparallel commercial and Bank (or KfW/UK) financed subloans for individualprojects so as to provide for adequate disbursement and repayment periods andto help balance interest rate and currency risks. Analysis of the pattern ofsubloan amortization schedules under past Bank and KfW loans indicates thatICICI could blend up to 40% commercial funds with 60% Bank or KfW funds with-out having to reduce significantly its clients repayment schedules. However,ICICI does not believe that it could aim to use more than 30% commercial fundsin its operations until euro-dollar interest rates decline and its clientsbecome better acquainted with floating rate subloans. 2/ To facilitate itsblending operations, ICICI would be allowed to tailor the amortization sched-ules of Bank subloans for projects involving parallel commercial subloans, soas to allocate relatively more of the early maturities for repayments to thecommercial lenders. Since the overall repayment schedule of the proposedBank loan would be based on the composite of the amortization schedules of theindividual subloans, this would result in repayment to the Bank being slowerthan normal in the initial years. Assuming an average blending ratio of 30:70for all projects, only 25% of the loan would be repaid in the first sevenyears compared to about 40% under previous Bank loans. ICICI would also bepermitted to allocate early disbursements for individual subprojects preferen-tially to the commercial subloans so as to drawdown its commercial borrowingswithin the required 30 month period, and avoid the foreign exchange risksinvolved in drawing down these borrowings in advance of when they are requiredfor subloan disbursements. This would have the effect of slowing down dis-bursement of the Bank loan initially, although the overall disbursement periodof about 5 years would not be affected. At a maximum this could mean that the27% of the Bank loan that would normally be disbursed in the first two yearswould be delayed until years 3 to 5. However, in practice the effect islikely to be less pronounced, since ICICI's commercial borrowings would be intwo tranches, and because ICICI would not need to make parallel Bank and com-mercial subloans for all projects.

1/ In its second borrowing in 1981, ICICI may decide to issue floatingrate bonds in order to expose a wider selection of investors to ICICI.

2/ During the first half of April 1980, LIBOR rates averaged about 19%for dollars and 9.5% for D. Marks. Thus, at present, ICICI's clientswould pay an average interest rate of about 17.3% on subloans financedthrough ICICI's commercial borrowings.

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5.05 ICICI has included in its Statement of Financial and OperatingStrategy a description of the procedures 1/ it intends to adopt in blendingcommercial funds with its other foreign exchange resources, including thesteps it intends to adopt to avoid incurring foreign exchange risks in usingthe commercial funds. In addition, this Statement explicitly confirm ICICI'sintention to conduct its operations so as to ensure that an acceptable pro-portion of Bank funds would be: (i) disbursed in the first 2 years (10%);and (ii) repaid in the first seven years (25%). A statement was submittedto the Bank for review during loan negotiations and finalized, in a formsatisfactory to the Bank. It was formally approved by ICICI's Board ofDirectors on April 17, 1980.

5.06 Domestic Currency. Annex 3, Table 12 shows the domestic currencyresource position through 1983. From 1980 to 1983, disbursements for domesticcurrency loans and investments are expected to be Re 5,940 million. Totaldomestic currency requirements would be funded by borrowing, primarily byissue of bonds and debentures and loans from IDBI (73%), loan collections(18%), internal generation (6%), portfolio sales (2%) and share capitalincreases (1%). ICICI should be able to raise the required resources as itsdebentures would continue to carry a Government Guarantee and offer sufficientyield to make them attractive to institutions (para 7.03).

Financial Projections

5.07 Annex 3, Table 13 shows the projected income statements for theperiod 1980 to 1983. Profits before taxation are expected to increase fromRs 117 million in 1979 to Rs 256 million in 1983, an increase roughly in linewith the projected growth in total assets. After-tax profits are expected togrow from Rs 81 million in 1979 to Rs 175 million in 1983, a return of between17% and 19% on average equity, which is somewhat higher than ICICI has achievedin the past. This reflects the reduced tax liability as a result of a largerploughback allowance and the relatively low increases in share capital fore-seen. Administrative expenses are expected to rise at about 11% p.a. andare expected to remain at around 0.5% of average total assets. The dividendrate is expected to be maintained at 12% allowing an adequate plough-back ofnet earnings.

5.08 ICICI expects that it will have an average nominal interest spreadof about 2.8% p.a. on its lending operations. At the margin, ICICI's foreigncurrency loans from non-commercial sources would have a weighted averagespread of about 3.0% on normal operations and 2.0% on loans to backward areas. 2/However, on loans from commercial sources, ICICI's spread could be as low as1.0% depending on whether LIBOR rates on dollars remain higher than 9.5%. Dueto the relatively small proportion of ICICI's lending from these sources

1/ These procedures were further elaborated in a memorandum presented tothe Bank during loan negotiations. ICICI's intention to follow theseprocedures was recorded in the agreed minutes.

2/ Assuming that the cost of Bank funds would be 8.25%, KfW about 7.5% andUK funds 6.5%.

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(about 9%), a low spread on this lending will not have a pignificant effecton profits. On domestic currency loans, ICICI expects to have an averageinterest spread of about 4% on normal lending operations and 2.5% on lendingto backward areas. 1/ At these rates, ICICI's average interest spread wouldbe satisfactory.

5.09 Annex 3, Table 14 shows the projected balance sheets for 1980 to1983. Total assets are expected to grow from Rs 5,850 million in 1979 toRs 11,937 million in 1983, an annual growth rate of 19% p.a. The loan andinvestment portfolio would increase at about the same rate from Rs 5,171 mil-lion in 1979 to Rs 10,368 million in 1983. Shareholders' equity is expectedto remain at 10% of the portfolio. The debt equity ratio is expected toincrease from 9.5:1 in 1979 to 10.6 in 1982, within the new limit of 11:1 setin 1979. ICICI would increase its share capital by Rs 23 million in 1980,Rs 22 million in 1981 and Rs 27 million in 1983, in accordance with an under-standing with the Bank to raise Rs 72 million by 1983. The contractual debt/equity limit of 11:1 would continue to be appropriate for the proposed loan.

5.10 Annex 3, Table 15 shows the projected cash flow statements for1980 to 1983. ICICI expects to maintain its collection ratio at 90%, whichis attainable in the light of past performance. On this assumption, the debtservice coverage ratio would remain above 1.2 throughout the period, which issatisfactory. The calculated ratio ranges from 1.24 in 1979 to an estimateof 1.63 in 1983.

VI. THE PROPOSED LOAN, ITS JUSTIFICATION AND RISKS

A. The Proposed Loan

6.01. The proposed loan of $100 million would be made to ICICI with theguarantee of the Government of India, under standard Bank terms for loans todevelopment finance companies, including the normal commitment fee. Theproceeds of the loan, together with other foreign loans, would be relent byICICI to cover the foreign exchange costs of industrial projects mounted byprivate, public and joint sector enterprises. The loan is expected to becommitted in about 2 years after loan effectiveness and to be disbursedwithin 5 Years (see Annex 2). The closing date would be December 31, 1985.The loan would be repaid on the basis of a flexible amortization schedule thatwould be adjusted to conform to the aggregate of the amortization schedules ofthe subloans made out of the proceeds of the loan.

6.02 Subloan Terms. Loan procceeds would be relent at ICICI's normalsubloan terms which provide for interest rates of 11% p.a. for all projectsother than those located in designated backward areas, for which an interest

1/ ICICI bond issues are at about 6.75%.

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rate of 10% would be charged. Subborrowers would bear the foreign exchangerisks on the currencies disbursed. Subloans would have a maximum maturityof 15 years, and would normally have a grace period of up to three years.However, in those cases where a parallel foreign exchange loan is being madefor the same project out of ICICI's commercial borrowings, ICICI would bepermitted to tailor the amortization schedules of the Bank subloan so as toallow the commercial funds to be repaid more rapidly. ICICI would useguidelines satisfactory to the Bank in setting amortization schedules in suchcases. ICICI would also be allowed some flexibility in financing earlysubproject expenditures preferentially from the commercial funds (see para5.04). Projects for which the cumulative amount of Bank financing wouldexceed US$6 million equivalent would require the Bank's prior approval.

6.03 Procurement and Disbursement. Procurement for projects financedwould be in accordance with ICICI's standard procedures, which conform tothe Bank's recommended practice for DFCs. Disbursement would be for 100% offoreign exchange expenditures for directly imported goods and services or100% of the estimated C.I.F. costs for imported goods purchased through localsuppliers. In accordance with standard DFC practice, project expendituresincurred up to 90 days prior to the Bank's receipt of a subloan applicationwould be eligible for financing out of the proceeds of the loan.

B. Benefits

6.04 By helping to fill a gap in the availability of foreign exchangeresources to finance capital goods imports, the proposed loan would contributeto sustaining the desirable rate of investment in the modernization and expan-sion of industrial capacity. Moreover, loan features are designed to assistICICI to raise an additional $55 million from foreign commercial sources andto be able to use these shorter maturity commercial funds effectively in itsoperations. Subloan beneficiaries would mainly be medium sized and largeprivate firms mounting projects that conform to the priorities established inICICI's Statement of Financial and Operating Strategy, including (i) exportindustries; (ii) power and transport; (iii) agricultural inputs and outputs;(iv) industries basic to industrial expansion, (v) downstream petrochemicalsand (vi) production of key mass consumption items. Based on experience duringprevious loans to ICICI, around one-third of loan proceeds are likely to beused for projects established in the industrially less developed regions(backward areas) including projects sponsored by new entrepreneurs. Alsobased on previous experience, the projects could be expected to create some20,000 jobs at an average investment cost of about $30,000 per job created.Economic rates of return for these projects are expected to be in the rangeof 15% to 40%, and to average about 20%. The primary institution buildingeffects of the loan would be to assist ICICI to focus better and selectivelyexpand its program of developmental activities, including studies designed toaddress the severe power shortage problems facing industry and encourage moreefficient energy use by industry.

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Risks

6.05 The proposed loan does not involve significant risks regarding theattainment of its objectives, since ICICI is a mature and capable institutionwith a sound record in industrial financing. Although the difficult economicsituation in India may depress the rate of industrial investment, ICICI'sfinancial projections and the proposed loan amount have been based on conserv-ative assumptions. Consequently, significant delays in loan commitment anddisbursement are unlikely.

VII. RECOMMENDATION

7.01 During loan negotiations, agreement was reached with ICICI on:

(i) the loan amount and principal terms (para 6.01);

(ii) subloan terms, including a free limit of US$6 million(para 6.02); and

(iii) disbursement arrangements (para 6.03).

7.02 During loan negotiations, the following points were discussedand appropriate understandings reached with ICICI:

(i) ICICI's program for mobilizing funds from foreign commercialsources (para 5.03);

(ii) ICICI's Statement of Financial and Operating Strategy, in-cluding the procedures it intends to adopt in blending Bankfunds with commercial borrowings in financing individualprojects (para 5.05);

(iii) ICICI's future developmental activities, including the natureand timing of industrial studies and consultation with theBank on their terms of reference (para 4.13).

7.03 ICICI's Statement of Financial and Operational Strategy, in a formsatisfactory to the Bank, was approved by ICICI's Board of Directors byApril 17, 1980.

7.04 With the above agreements and understandings reached, a Bank loan of$100 million is recommended on terms and conditions outlined in Chapter 6.

ANNEX 1

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Distribution of Shareholding as of September 30, 1979

No. of Pero.-Share- No. of Amount nteholders Shares Ra,

Off icial Sector

Life Insurance Corporatio3i of India 557,421 55,742,100New India Assurance Co. Lt. 248,965 24,896,500Unit Trust of India 240,132 24,013,200General Insurance Corporation of India 116,486 11,648,600National Insuranoe Co. Ltd. 114,612 11,461,200BanL of India 90,206 9,020,600PunJab National Bank 85,725 8,572,500Bank of Baroda 50,831 5,083,100State Bank of India 50,000 5,000,000United Bank of India 46,545 4,654,500Central Bank if India 46,233 4,623,300Oriental Fire & General Irsuranoe

Insurance Co. Ltd. 43,573 4,357,300United Coomeroial Bank 39,692 3,969,200Indian Overseas Bank 30,689 3,068,900Unitdd India Fire & General Insurance

Oo. Ltd. 27,748 2,774,80011 other Official Seotor Shareholders

holding less than 11,250 sharea each 29,907 2,990,700

26 1,818,765 181,876,500 80.83

P,rivate Se tcr

Indo-Burxa Petroleum Co. Lt. 19,992 1,999,200Associated Cement Coe. Ltd. 17,363 1,736,300Clive Row Investment Holding Co. Ltd. 14,245 1,424,500Soindia Steam Navigation Co. Ltd. 11,391 1,139 ,10052 other Private Sector Shareholders

holding lesa than 11,250 shares each 47,019 4,701,9002317 Individual Shareholders holding

less then 11,250 shares eaoh 64,916 6,491,600

2,373 174,926 17,492,600 7.78

2,399 1,993,691 199,369,100 88.61

UJ.K. GROUP

The Ohartered Bank 45,000 4,500,0006 others holding less than

11,250 shares each 11,747 1,174,700

7 56,747 5,674,700 2.52

Bank of Amerioa N.T. & S.A. 37,550 3,755,000Citibank N.A. 22,500 2,250,000Bank ^f America 18,700 1,870,000American Expreas International

Banking Corporation 15,003 1,500,300Olin Corporation 12,500 1,250,0004 others holding less than 11,250

shares eaoh 13,758 1,375,800

9 120,011 12,001,100 5.33

FEDERAL REPUBLIC C' oBaI1Y

Deutsche Bank AG 33,750 3,375,000Dreadner Bank AG 18,750 1,875,000

2 52,500 5,250,000 2,33

Bank of Tokyo 7,500 750,000The Mitsui Bank Limited 7,500 750,000The Industrial Bank of Japanx Ltd. 3,552 355,200

3 18,552 1,855,200 0.83

Skandinaviska Fiskilda Barken 1 4,500 450,000 0.20

F?RANGE

Banque Nationale de Paris 1 3,999 399,900 0.18

Total iunmber of Shares & Shareholders 2,422 2,250,000 225,000,000 100.00

- 35 - ANNEX 2

THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Estimated Quarterly Disbursement Schedule for Proposed Thirteenth Loan

Quarters Amount(US$ million)

1980 October - December 0.1 0.1

1981 January - March 0.6 0.6April - June 0.7 0.7July - September 1.3 1.3October - December 1.3 1.3

3.9 3.9

1982 January - March 2.0 2.0April - June 2.0 2.0July - September 2.0 2.0October - December 2.7 2.7

8.7 8.7

1983 January - March 10.0 10.0April - June 12.8 12.8July - September 15.7 15.7October - December 14.3 14.3

52.8 52.8

1984 January - March 11.4. 11.4April - June 10.0 10.0July - September 7.4 7.4October - December 5.7 5.7

34.5 34.5

100.0 100.0

- 36 -AN TeI

INDUSTRIAL CREDlT AND INVESTMENT CORPORATION OF INDIA LIMITED

Selected Lendin and Borrowin Rates in India 1975-79

As of October1975-76 1976-77 1977-78 1978-79 1979

Bank Rate 9 9 9 9 9

Deposit Rates:

Post office savings 5 5 5 5 5.5

Fixed deposits -

(i) 1-3 years 8 8 8 1/ 6 76 (June 1)

(ii) 3-5 years 9 9 9 1/ 7.5 8.58 (June 1)7.5 (March 1)

(iii) 5 years and above 10 10 10 1/ 9 109 (March 1)

Rate on Bank Advances

Rate of scheduled banks 12.5-16.5 12.5-16.5 12.5-15.0 12.5-15.0 15-18

Long-term Lending Rates -Rupee Loans

IDBI 11 ll 11 11 11IFCI 12 11 11 11 11ICICI ll 11 11 ll ll

(for both rupeeand foreigncurrency loans)

Central Government Securities

3% 1986 or later 5.0 5.0 5.0 - -4% 198C 5.37 5.44 5.40 5.05 2/ 3.974% 1979 5.30 5.36 5.31 - -5% 1982 5.45 5.52 5.34 5.37 2/ 5.205-1/2% 1999 5.17 6.27 6.28 - -5-3/4% 2003 6.39 6.38 6.41 6.45 2/ 6.62

Bazaar Bill Rate (Bombay) 21 21 N.A. N.A. N.A.

Private Securities

(i) Debentures -

Redemption yield 11.10 13.50 12.54 N.A. N.A.Running yield 8.39 8.55 8.89 N.A. N.A.

(ii) Preference shares 11.88 12.36 12.66 12.33 N.A.

(iii) Variable dividend -Industrial securities 5.43 6.14 6.47 5.66 N.A.

1/ Date and month of *Liange in irtercst is indicated in brackets.2/ AvPrqP? fnr thp nprinol Anril 147f, t, March 1Q7Q

Note: N.A. - Not available.

- 37 _ANNEX-3, Tabit

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Sumnaary of Operations to September 30, 1979(Rs million)

Foreign DirectCurrency Rupee Under- subscrip-Loans Loans Guarantees writing tion Total

A,. ApproVrll /

1973 441.7 174.5 0.1 44.0 34.2 694.5

1974 514.5 173.9 - 37.1 -2.9 722.61975 353.1 200.6 30.8 47.1 80.7 712.31976 414.8 425.6 59.3 71.3 1.4 972.41977 260.6 669.9 - 36.6 60.6 t027.71978 241.7 1029.2 2.6 85.4 19.9 1378.81979 (Jan-Sept.) 505.5- 921.9 -5.8 93.9 19.9 1535.4

Cumulative since 6247.5 4385.4 192.8 1024.0 349.0 12198.71955 - - - - - -

B. Commitments 1/

1973 551.6 134.6 1.5 32.6 25.0 745.3

1974 376.6 173.4 6.3 23.9 4.8 585.01975 349.1 106.4 - 51.4 39.4 546.31976 502.8 250.7 89.8 37.9 24.0 905.2

1977 352.8 441.0 - 72.9 30.5 897.21978 298.8 601,9 - 47.4 22.6 970.71979 (Jan-Sept.) 331.6 676.4 - 43.7 61.5 1113,2

cumulative since 5758.5 3019.3 192.8 883.4 305.5 10159.5

-~~ ~ ~ ~ ~~~~ - -.

C. Disbursements

1973 359.2 106.1 2.0 14.4 22.3 504.01974 369.2 157.7 0.1 21.0 8.3 556.31975 371.0 134.2 0.1 24.2 16.3 545.81976 377.1 219.3 - 25.9 42.1 664.41977 427.1 347.6 0.3 25.0 33.9 833.9

1978 383.3 606.9 0.2 48.5 25.1 1064.01979 (Jan-Sept.) 282.8 534.0 - 10.5 46.1 873.4

Cumulative since 5332.9 2703.8 2.7 500.9 279.5 8819,81955

1/ Net of cancellations.

Note: Foreign currency figures converted at the current rupee parity.

ANNEX 3. Table 3- 38-

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Financial Performance of ICICI Clients in Operation

Data for 417 Companies Covering April-March 1976-77 and 1977-78

Grotss s Tt' :t It Ad SalsiGross before Total Aftiit Tax and Wage.

Profits *. ax as % Capital as % of as % of Value Added asIndustry Grouc Year % of sales of sals Es Lloved % Nrt Worth Value MAded of Gross Capital

Total Sample (417 Companies) 1976-77 13.6 6.6 16.4 9.8 48.9 29.01977-78 13.3 6.4 16.3 10.5 49.8 29.1

Automobiles and Cycles 1976-77 14.1 4.9 15.3 11.4 52.9 28.1(18 Companies) 1977-78 J4.4 5.3 15.8 13.4 54.8 29.5

Cement 1976-77 11.4 4.3 12.6 8.5 52.8 21.8(8 Companies) 1977-78 14.0 7.3 19.2 10.2 47.5 24.5

Chemicals and Petroohemioals 1976-77 18.5 11.0 20.4 12.8 35.1 28.6(76 companies) 1977-78 19.2 11.9 21.9 14.3 34.5 29.8

Eleotrioal Equipment 1976-77 12.8 6.9 20.5 8.2 52.B 41.0(36 Companies) 1977-78 12.9 7.4 22.1 10.4 53.8 43.1

Food Products (excluding sugar) 1976-77 10.3 7.9 37.0 20.0 53.3 57.4(9 Companies) 1977-78 10.6 8.6 38.3 21.2 50.0 58.4

Glass and Pottery 1976-77 22.2 13.6 21.6 11.4 41.7 33.8(10 Companies) 1977-78 22.8 14.4 24.2 15.7 40.2 36.5

Machinery Manufaoture 1976-77 17.1 9.4 20.1 16.9 49.3 41.0(53 Companies) 1977-78 16.3 8.8 19.0 16.7 50.9 39.4

Metal Produots (Ferrous) 1976-77 14.7 5.2 12.4 7.8 52.3 21.8(41 Companies) 1977-78 12.2 2.4 9.3 4.1 58.9 20.7

Metal Produets (Us-ferrou) 1976-77 14.9 6.C 15.0 7.5 47.6 23.6(10 Cocp.as) 1977 15.0 6.& 14.7 7.6 50.7 25.9

Flowe - smse.tis -*d -pttti - 1976-77 15.0 9.4 17.6 )2.9 22.6 18.0bution (,6 Companies) 1977-78 14.6 8.9 17.1 11.6 25.0 18.2

Pulp, Paper and Paper Produots 1976-77 16.4 7.0 13.6 5.1 48.0 25.1(19 Companies) 1977-78 16.1 7.0 13.3 7.2 48.7 24.4

Rubber Producte 1976-77 9.6 4.1 14.0 6.9 53.1 31.4(8 Companies) 1977-78 6.1 0.1 7.9 -1.1 64.2 27.2

Shipping 1976-77 20.8 4.9 6.6 4.6 36.3 14.2(2 Companies) 1977-78 17.5 2.3 4.3 3.5 39.5 11.0

Sugar 1976-77 12.1 3.5 14.6 0.5 38.4 20.0(13 Companies) 1977-78 12.2 -0.8 8.6 -7.2 44.2 15.8

Textiles (Cotton) 1976-77 7.8 1.0 9.0 -1.8 71.0 33.0(44 Companies) 1977-78 8.6 2.2 12.4 4.7 67.6 36.1

Diversified 1976-77 12.1 6.5 18.5 10.6 47.4 32.0(24 Companies) 1977-78 11.2 5.6 17.0 11.8 49.0 30.9

Miscellaneous 1976-77 9.5 5.0 16.8 - 54.9 36.4(40 Companies) 1977-78 9.3 4.6 16.2 - 54.6 36.2

Note: Diversified Companies consist of companies iavolved in more than one type of industrial activity.A copanW has been treated as diversified if no single industrial activitj accounts for atleast 75 per cent of the total turnover of tho oompazq.

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Trend in Arrears (1973 to September 1979)

(Rs million)

Principal in Principal inarrears as % of arrears as % of

No. of Principal loans loansYear Companies Outstanding Principal Interest Total loans outstanding loans outstanding

1973 42 107,633 23,839 17,044 40,883 1.58 7.14

1974 47 124,739 29,999 21,019 51,018 1.73 7.20

1975 77 256,269 35,354 24,684 60,038 1.51 10.97

1976 97 457,174 53,797 40,474 94,271 1.99 16.97 1

1977 138 549,010 58,327 51,202 109,525 1.87 17.56

1978 156 537,277 77,721 51,903 129,624 1.95 13.51

1979 171 688,114 93,067 75,941 169,008 2.10 15.56(Sept.)

mI

H{D

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Industrial Breakdown of Arrears as of September 30, 1979(Rs in millions)

ArrearsNo. of Companies No. of Foreign Exchangein ICICI's Loan Companies Loans Rupee Loans

Industry Portfolio in Arrears Principal Interest Principal Interest Total

Automobile ancillaries 34 9 700 184 462 1,679 3,025Cables and conductors 11 1 149 - - - 149Castings 13 5 141 551 210 954 1,856Ceramics/Refractories 8 2 468 235 1,931 987 3,621Chemicals 33 5 482 284 787 395 1,948Cotton textiles 61 5 259 431 420 220 1,330Cutting tools 11 2 293 299 - - 592Electronics 15 6 691 2,043 465 281 3,480Food and allied 30 5 1,090 933 107 - 2,130Forgings 6 2 - 27 1,356 1,276 2,659GLS lamps 10 5 1,676 876 1,573 486 4,611 °Glass bottles 8 3 383 1,098 550 253 2,284House service meters 4 3 3,790 1,537 83 - 5,410Hotels 12 2 - - - 170 170Industrial machinery 32 1 - - 140 49 189Leather 9 2 - - 698 248 946Machine tools 12 2 17 3 124 - 144Measuring instruments 4 2 196 41 - - 237Mini steel 13 7 2,430 1,027 2,702 3,074 9,233Paper and paper products 42 14 6,360 3,289 2,875 6,420 18,944Plastics 14 4 318 699 8,839 3,544 13,400Rubber, rubber products and

tires 17 6 760 874 36 329 1,999Scooter, mopeds and bicycles 9 5 - - 1,618 2,145 3,763Spun pipes 5 3 13,834 12,592 1,938 1,792 30,156Steel wire and wire ropes 10 5 - - 1,940 1,063 3,003Sugar 63 25 - - 8,327 8,449 16,776Woollen textiles 7 2 - - 500 - 500Miscellaneous 377 38 13,677 9,321 7,672 5,783 36,453

TOTAL 870 171 47,714 36,344 45,353 39,597 169,0080*

m

, .~~~~~~~~~~~~~~~~~~-

- 41 - ANNEX 3. Table 6

THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Resources Position at September 30, 1979

Rupee Resources Rs million

Share capital 225.0Reserves (3) 287.2Four Government of India Loans

Total 325.0Less: Repayments 258.6 66.4

Loans and grants from Governmentof India out of KfW interestdifferential funds (net) 35.4

Seventeen IDBI Loans:

Total 708.9Less: Repayments 108.2 600.7

Debentures/bonds:

Total 2,195.3Less: Redeemed 60.0 2,135.3

Total Resources 3,362.8

Fixed deposits

Total 18.1Less: Repayments 5.3 12.8Less: Loans and Investment

outstanding 2,557.6

Net fixed assets 20.3 2,577.9

Resources available for disbursement 784.9

Less: Undisbursed Commitment 353.6

Resources available for commitment 431.3

Foreign Currency Resources

Twelve IBRD

Total $515.0Less: Cancellations and

repayments $272.1 2,013.5

Sixteen KfW Lines of Credit

Total DM 134.5Less: Repayments DM 47.8 396.3

Eight U.K. Lines of Credit

Total b 18.0Less: Cancellations L 0.3 315.3

Euro dollar loan S 20.0 165.8

One Swiss Bond Issue

Total SF 8.0Less: Management fee &

underwriting commissionand repayments SF 1.3 34.2

DM Revolving Funds DM 15.9 72.9

Total Resources 2,998.0

Less: Loans outstanding 2,420.4

Resources available for disbursement 577.6

Less: Undisbursed commitment 425.6

Resources Available for Conmitment 152.0

Notes: (1) Guarantees have been ignored throughout.(2) The amounts approved but not committed are rupees: Rs 1,550.2

million and foreign currencies: Rs 489.2 million.(3) After adjusting for estimated taxation and dividend.

-42- ANNEX 3, Table 7Page 1

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Details of Foreign Currency Borrowings Concluded up toSeptember 30, 1979

Maximum DrawingDate of Amount (Net of Maturity Rate of Without

Loan No. Agreement Cancellations) (Grace Period) Interest Creditor's Approval(Years) %

IBRD (US$ '000) USS

109 3/14/55 9.9 14 4-5/8 None(5)

232 7/15/59 9.8 10 Variable 1/ 100,000(3)

269 10/28/60 19.3 10 Variable 1/ 50,000(3)

312 2/28/62 19.1 15 2/ Variable 1/ 50,000(3)

340 6/5/63 26.9 14 2/ Variable 1/ 2,000,000(2)

414 5/28/65 47.2 15 2/ 5-1/2 2,000,000(3)

515 9/19/67 23.9 13 2/ Variable 1/ 2,000,000(3)

683 6/3/70 38.8 12 2/ 7 4,000,00G(1)

789 10/27/71 56.7 13 2/ 7-1/4 4,000,000(1)

9102 6/8/73 62.5 17 2/ 7-1/4 4,000,000(1)

1097 4/2/75 95.6 14 2/ 8-1/2 4,000,000(2)

11475 7/22/77 80.0 17 2/ 8-1/5 4,000,000

______ (3)

489.7

- 43 - ANNEX 3, Table 7Page 2

Maximum DrawingDate of Amount (Net of Maturity Rate of Without

Loan No. Agreement Cancellations) (Grace Period) Interest Creditor's Approval(Years)

AID (US$ '000) US$

DLF 155 3/23/61 4.5 16 5 250,000(2)

KfW (DM '000) DM

62 65 144 4/26/63 20.0 18 5-1/2 500,000(2)

63 65 522 7/29/64 5.0 16 5-1/2 2,000,000(2)

64 65 249 11/23/64 10.0 15 5-1/2 2,000,000(2)

64 65 322 6/8/65 5.0 25 5-1/2 2,000,000(7)

66 65 152 3/23/66 20.0 25 5-1/2 2,000,000(7)

67 65 135 11/3/67 5.0 25 5-1/2 2,000,000(7)

67 65 168 6/11/68 7.5 25 5-1/2 2,000,000(7)

68 65 117 4/11/69 5.0 25 5-1/2 2,000,000(7)

69 65 156 6/2/70 5.0 30 5-1/2 2,000,000(8)

70 65 105 6/22/71 10.0 30 5-1/2 2,000,000(8)

72 65 143 9/30/72 5.0 30 6 2,000,000(8)

73 65 083 6/15/73 5.0 30 6 2,000,000(10)

73 65 158 3/31/74 5.0 30 6 2,000,000(10)

74 65 719 6/6/75 7.0 30 7-1/2 2,000,000(10)

75 65 575 6/25/76 10.0 30 7-1/2 2,000,000(10)

- 44 - ANNEX 3, Table 7Page J

Maximum DrawingDate of Amount (Net of Maturity Rate of Without

Loan No. Agreement Cancellations) (Grace Period) Interest Creditor's Approval(DM '000) (Years) % DM

76 65 615 12/4/76 10.0 50 7-1/2 2,0OU,000(10)

77 65 977 8/8/79 3/ 10.0 50 7-1/2 2,000,000(10)

144.5

U.K. (E '000)

I 7/18/69 0.9 - - 250,000

II 5/26/70 0.9 - - 250,000

III 11/12/71 1.0 - - 250,000

IV 1/1/74 1.5 - - 500,000

V 10/7/74 1.0 - - 500,000

VI 9/12/75 2.5 - - 500,000

VII 2/21/77 4.0 - - 500,000

VIII 2/22/78 6.0 - - 500,000

17.8

Swiss Bond Issue (SF '000) SF

I 10/18/73 8.0 15 8(4)

Euro dollarMarket Borrowing (US$ '000) US$

I 10/19/78 20.0 7 1 over(2-1/2) LIBOR

1/ Interest will be applied to each portion of the loans at the World Bank's standardrate when such portion is committed for a specified project.

2/ Repayment schedule is a composite of the repayment schedules of the sub-loans ofICICI's borrowers.

3/ Net yet effective.

ANNEX 3, Table 8-45 - Page 1

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Details of Rupee Borrowings Concluded up to September 30, 1979

Date of Maturity Rate of RepaymentLoan No. Agreement Amount (Grace Period) Interest Begins in

(Rs '000) (Years) %

Government Loans

1 1/29/55 75 30 Free of 1970(15) interest

2 10/26/59 100 20 4-1/2 1971(10)

3 7/31/65 100 15 5 for Rs 90 1970(5) million,

5-1/2 forRs 10 million

4 7/30/66 50 15 5-1/2 1971(5)

325

IDBI Loans

1 11/1/66 50 15 5-5/8 1972(5)

2 5/10/67 30 14 4-5/8 1972(5)

3 11/27/68 25 15 5-5/8 1974(6)

4 6/18/69 18 15 5-5/8 1975(6)

5 2/17/71 18 14 6-1/4 1976(5)

6 3/22/72 18 14 6-1/2 1977(5)

7 11/26/73 28.5 14 6-3/4 1978(5)

8 9/3/74 19 14 7-3/4 1979(4)

9 11/26/75 47.4 14 7-3/4 1980(4)

10 3/30/77 60 13 7-3/4 1981(3)

ANNEX 3. Table 8- 46- Page 2

Date of Maturity Rate of RepaymentLoan No. Agreement Amount (Grace Period) Interest Begins in

(is-TO-00) (Years)

11 12/27/77 50 15 6-1/4 1983(5)

12 3/27/78 95 13 7-3/4 1982(4)

13 6/8/78 50 13 6-14 1983(4)

14 10/23/78 50 15 6-1/4 1984(5)

15 12/22/78 50 15 6-1/2 1984(5)

16 4/18/79 50 15 6-1/2 1984(5)

17 8/1/79 50 15 6-1/2 1984(5)

708.9

Debenture/Bond Issues

1 10/27/67 60 Redeemed on 6Nov. 5, 1975

2 11/25/69 50 Redeemable at 6par on Dec. 11980.

3 6/1/72 70 Redeemable at 6par on July 1,1984

4 3/20/73 80 Redeemable at 6par on April 1,1985

5 5/30/74 90 Redeemable at 6-1/4par on June 15,1986

6 2/10/75 55 Redeemable at 6-1/4par on April 1,1985

7 8/2/75 137.5 Redeemable at 6-1/4par on Sept. 1,1990 1/

8 4/26/76 137.5 Redeemable at 6-1/4par on May 15,1991 l/

- 47 - ANNEX 3. Table 8

Page 3

Date of Maturity Rate of Repayment

Loan No. Agreement Amount (Grace Period) Interest Begins in

(Rs 10-00) (Years) x

9 9/8/76 165 Redeemable at 6-1/4par on Oct. 15,1992 1/

10 4/22/77 220 Redeemable at 6-1/4 -par on May 1,1993 1/

11 12/29/77 99 Redeemable at 6-1/2 -par on Feb. 1,1998 1/

12 5/29/78 330 Redeemable at 6-1/2 -

par on July 1,1998 1/

13 12/28/78 250 Redeemable at 6-1/2 -

par on Feb. 1,1999 1/

14 6/29/79 451 Redeemable at 6-3/4 -par on Aug. 1,1999 1/

2,195

1/ Guaranteed by the Government of India as regards the repayment of principal and

payment of interest.

ANNEX 3, Table 9

- 48 -

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Audited Income Statements 1974-78 and January September, 1979(Rs million)

Jan.-Sept.

1974 1975 ~1976 1977 8 1978 29

INCAME

Interest on Temporary Investmentsalnd Deposits 8.94 7.98 9.29 13.25 12.34 10.85Interest on IRpee Loans andDebentures 46.17 54.26 68.23 95.38 140.69 146.17Intcrast on Foreign Currencv Loans 133.95 164.50 176.78 193.43 225.49 174.22Div,idends 6.50 8.01 9.50 11.75 11.67 8.99Capital Gains 3.93 6.05 5.98 5.51 17.18 3.99Underwriting Commission & Brokerage 0.59 0.95 0.59 0.89 1.27 0,4QGuarxnitee Commission 0.33 0.32 0.85 0.56 0.53 0.27Comcun;,sion on Letters of Credit - 0.04 1.64 1.76 1.53 1.36Mierchant Ban}ing Fees - 0.55 1.01 1.78 0.99 1.40Other Income 0.55 0.45 0.4p 1.94 1.27 0.65

200.96 243.11 274.36 326.25 412.96 348.30

EXPENSESSalaries etc. 6.34 9.09 c.23 11.02. 11.38 8.83Other Administrative Expenses 4.29 6.20 6.7/ 7.56 12.74 7.44Interest & Discount on Debentures 20.92 30.63 39.20 60.73 84.18 87.41Interest on Rupee Loans 19.16 1.8.34 20.43 21.94 30.72 3t.24Interest on Foreign Currency Loans 96.38 120.29 129.52 141.49 167.60 129.37Interest on Deferred Dividends - 0.14 0.43 0.26 -

Provisions for Bad & EDubtfbul Debts 1/ - 1.54 0.82 5.60 6.28 -Bad Debts Wri-tten Off 1 .9Z _o_.L - - - -

149.03 187.58 206.37 248.60 312.90 264.34

Profit before Taxes 51.f3 55,53 67.99 77.65 100.06 83.96Less: Taxes 25.29 23.34 29.95 27.00 32.20 27.00 2/Add: Excess Provision/aefund for -Income-tax and Sur-tax onPrevious Years - 2.85 - 2.89 2.71 -

Net Profit 26.64 35.04 38.04 53.54 70.57 56.96

Dividend - 12.50 16.50 18.00 18.75 25.50 -Dividend Pay out Ratio (%) 46.9 47.1 47.4 35.02 36.13 -Net Profit/Average Net Worth (%) 10.2 11.4 12.0 14.8 15.9 14.7Average Cost of RupeeBorrowings (%) 5.3 5.6 5.2 6.4 6.6 6.5

Average Cost of Foreign CurrencyBorrowings (%) 83. 7.1 7.0 7.3 7.9 7.7Interest Spread 2.' 2.1 2.4 2.4 2.6 2.7Earnings per Share (Rs) 3/ 17.76 23.36 25.36 24.33 31.36 33.76Administrative Expenses/Average Total Assets (') 0.5 0.6 o.5 0.5 0.5 0.4Profi-t before Tax & Provisions/

Average Total Assets (,) 2.4 2.2 2.1 2.1 2.2 2.0

1/ These provisions are made against current assets only.2/ Tax liability worked out whichi comes to 31.93% of profit.3/ On increased capital in 1975, 1977 and 1978

- 49 - ANNEX 3.- 49 ~ Table 10

THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Balance Sheets 1974-78 and September 30, 1979(Rs million)

December 31 Sep. 301974 1975 1976 1977 1978 1979

ASSETS

Temporary Investments etc. 15.8 10.3 10.3 10.3 12.7 15.0Industrial Assistance

Shares 196.5 222.9 248.8 280.9 322.5 339.4Debentures 152.5 150.3 166.4 188.1 192.1 180.6Loans in rupees 461.1 550.0 732.6 1,005.7 1,542.6 2,037.6

810.1 923.2 1,147.8 1474.7 2,057.2 2,557.6Loans in foreign currencies 1,270.5 1,785.8 1,957.8 2,120.5 2,370.8 2,424.2Fixed assets (Net) 11.3 13.8 16.4 18.6 20.1 20.3

Current Assets and Advances

Cash and bank balance 84.3 140.8 156.3 129.0 213.7 436.8Other assets and advances 147.8 160.5 237.1 272.3 357.8 449.8

2,339.8 3,034.4 3,325.7 4,025.4 5,031.1 5,903.7

CAPITAL AND LIABILITIES

Share capital 126.8 150.0 150.0 187.5 225.0 225.0Reserve surplus l/(and grants) 146.4 154.3 176.7 214.0 262.1 323.2 2/

273.2 304.3 326.7 401.5 487.1 548.2

Rupee Borrowings

Debentures 350.0 482.5 785.0 1,005.0 1,434.0 2,135.2Government of India 219.3 191.7 163.8 135.4 107.0 86.1IDBI 180.0 215.1 201.0 295.1 521.4 600.7Fixed deposits - public - - - - 5.0 12.8

749.3 889.3 1,149.8 1,435.5 2,068.3 2,834.8

Foreign Currency Borrowings

IBRD 1,035.8 1,453.8 1,580.4 1,720.7 1,912.7 1,869.1AID 1.0 1.0 0.5 - - -KfW 145.9 213.4 248.9 259.5 293.9 332.9Swiss bonds 15.1 27.5 29.4 31.3 35.1 35.6Eurodollar loan - - - - - 16.6

1,200.8 1,695.7 1,859.2 2,011.5 2,241.7 2,254.2

Current liabilities 116.5 145.1 190.0 176.9 234.0 266.52,339.8 3,034.4 3,525.7 4,025.4 5,031.1 5,903.7

Guarantees outstanding 41.2 34.1 92.8 80.6 67.3 59.8Long-term debt/equity ratio 7.2 8.6 9.1 8.6 8.8 8.8Debt/equity ratio as defined

in Bank Loan Agreement 8.0 7.9 9.0 9.0 8.8 9.3

1/ Reserve up to December 31, 1974 includes dividends to be paid at the beginning ofthe following year from the current year's earnings. From 1975, the practice ofproviding dividends out of profits has been introduced.

2/ Tax liability worked out which comes to 31.93% of profit.

Note: In 1975 and thereafter, the figures of foreign currency loans have been arrivedat by converting each currency into rupees at the current rate of exchange asagainst the past practice of conversion at the central rate of exchange.

- 50- ANNEX 3, Table 11

THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Forecast of Approvals, Commitments and Disbursements 1980-83

(Rs. in millions)

1979/2 1980 1981 1982 1983

Approvals /

Rupee Loans 1194 1310 1422 1569 1737Guarantees -3 10 10 10 10Investments: Shares 122 150 120 129 132

Debentures 39 30 33 36 40

1352 1500 1585 1744 1919Foreign Currency Loans 645 650 715 796 861

1997 2150 2300 2540 2780

Commitments

Rupee Loans 929 1200 1490 1700 1960Guarantees - 10 10 10 10Investments: Shares 66 90 70 80 90

Debentures 62 30 30 40 50

1057 1330 1600 1830 2110Foreign Currency Loans 439 550 660 790 950

1496 1880 2260 2620 3060

Disbursements

Rupee Loans 808 1080 1250 1445 1660Guarantees Investments: Shares 27 60 60 68 75

Debentures 63 30 20 22 25

898 1170 1330 1535 1760Foreign Currency Loans 345 450 520 595 680

1243 1620 1850 2130 2440

l/ Net of cancellations and reductions.2/ Actuals.

- 51 - ANNEX 3, Table 12

THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Projected Foreign Currency and Domestic Currency ResourcePosition 1980-83

(Rs. in millions)

1979 Li 1980 1981 1982 1983

Foreign Currency Resources

Resources available for commitmentsat the beginning of the year 666 336 967 423 921

Plus New Resources

IBRD/Euro-dollar - 1060 - 1168 -KfW 70 47 47 47 47KfW Revolving Funds 39 38 33 37 42U.K. - 36 36 36 36

109 1181 116 1288 125

Less: New commitments 439 550 660 790 950Resources available for commitmentsat the end of the year 336 967 423 921 96

Rupee Resources

Resources available for disbursementsat the beginning of the year 181 203 289 410 526

Plus Resources

Internal cash generation L2 54 70 96 115 141Collection of loans including U.K. 99 160 236 336 474Sales from portfolio 33 39 34 40 49Increase in share capital - 23 22 - 27Rupee borrowings 866 1135 1185 1285 1335

1052 1427 1573 1776 2026

Less Requirements

Loan disbursements including U.K. 839 1120 1280 1480 1700Investment disbursements 90 90 80 90 100Repayments of loans 72 50 48 41 53Redemption of debentures - 50 - - -Fixed assets acquisition 1 10 8 1 1Other (increase in receivables, etc.) 28 21 36 48 53

1030 1341 1452 1660 1907

Resources available for disbursementsat the end of the year 203 289 410 526 645

1/ Actuals.2/ Net of taxes and dividends.

- 52 - ANNEX 3, Table 13

THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Projected Income Statements - 1980-83

(Rs. in millions)

1979 tl 1980 1981 1982 1983

INCOME

Interest on loans anddebentures 428.7 518.3 616.4 743.6 883.6

Commitment charge on loans 12.2 16.2 25.5 30.9 38.5Capital gains 7.9 7.5 9.6 10.2 10.8Dividend income 12.2 12.6 13.0 14.4 16.3Underwriting commission 1.0 1.5 2.7 2.9 3.1Guarantee commission 0.5 0.4 0.5 0.5 0.5Income from non-industrialsecurities, deposits etc. 15.8 18.6 26.2 33.8 41.1

Other income 5.3 5.9 6.0 6.5 6.5

Total Income 483.6 581.0 699.9 842.8 1000.4

EXPENSES

Interest on borrowings 331.9 404.7 479.5 580.6 688.2Commitment charge onborrowings 4.7 4.2 6.5 6.3 8.5Salaries and other personnelexpenses 14.1 15.7 18.2 22.2 25.2

Other administrative andgeneral expenses 14.9 16.6 13.4 21.2 21.9Depreciation 0.6 0.7 1.3 1.1 1.1

Total Expenses 366.2 441.9 518.9 631.4 744.9

Profit before tax 117.4 139.1 181.0 211.4 255.5Provision for tax 36.0 42.0 56.0 65.8 80.5

Net Profit 81.4 L2 97.1 125.0 145.6 175.0

APPROPRIATIONS

Dividends 29.3 27.7 30.4 32.4 34.8Reserve against doubtful debts 10.0 10.0 11.0 12.0 13.0Capital Reserve 7.4 7.5 9.6 10.2 10.8Special reserve 45.5 52.6 68.6 80.5 97.9Other reserves 1.2 (0.7) 5.4 10.5 18.5

1/ Actuals.2/ Net profit available for appropriations is actually Rs 93.4 million, due to

an addition of Rs 12.0 million due to transfer from Special Reserve, refundof income-tax and excess provision for taxation made in earlier years.

- 53 - ANNEY 3, Table 14

THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Projected Balance Sheets - 1980-83

(Rs. in millions)

Year ending December 31/1

19791- 1980 1981 1982 1983

ASSETS

Cash and bank balances 230 316 437 553 672Non-industrial investment 28 37 44 54 65Receivables, accrued income etc. 401 475 565 671 796

659 828 1046 1278 1533

Outstanding Loans:Rupee Loans 2298 3190 4202 5333 6590Loans out of U.K. Funds 105 131 145 159 175Foreign currency 2242 2313 2437 2626 2840

Outstanding Investments:Shares 347 404 460 519 584Debentures 179 183 186 185 179

5171 6221 7430 8822 10368

Fixed Assets (Net) 20 29 36 36 36

TOTAL ASSETS 5850 7078 8512 10136 11937

LIABILITIES AND EQUITY

Tax Payable 36 42 56 66 80Dividend payable 29 28 30 32 35Accounts payable and other current

liabilities 200 257 305 361 427

265 327 391 459 542

Rupee Borrowings 2866 3901 5038 6282 7564Foreign Currency Borrowings 2190 2229 2345 2543 2812

5056 6130 7383 8825 10376

Share Capital 225 248 270 270 297Reserve against doubtful debts 55 65 76 88 101Other reserves and unappropriated

profits 249 308 392 494 621

529 621 738 852 1019

TOTAL LIABILITIES AND EQUITY 5850 7078 8512 10136 11937

CONTINGENT LIABILITY

On account of Guarantees 59 62 64 64 63

1/ Actuals.

- 54 - ANNEX 3, Table 15

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Projected Cash Flow Statements - 1980-83

(Rs. in millions)

1979 1 1980 1981 1982 1983

SOURCES

Profit before tax 117 139 181 212 255Add back non-cash charges

(Depreciation) 2 1 1 1 1

Cash generation from orerations 119 140 182 213 256Increase in share capital - 23 22 - 27Draw-down on loans:

Rupee Borrowings:-IDBI 150 235 235 235 235Market Borrowings 716 900 950 1050 1100

Foreign currency borrowings 278 374 459 525 605Loans converted into equity 10 10 10 8 8Debentures converted into equity 1 2 2 - -Loan collection:

Rupee loans 101 178 228 306 395Loans out of U.K. funds 14 14 16 21 24Foreign currency loans 354 339 366 371 426

Shares from portfolio:Shares 14 15 16 17 18Debentures 19 24 15 23 31Non-Industrial securities - - - - -

1776 2254 2504 2769 3125

USES

Increase in fixed assets 1 10 8 1 1Increase in non-industrial securities 9 9 10 10 11Disbursement of loans:

Rupee loans 808 1080 1250 1445 1660Loans out of U.K. funds 31 40 30 35 40Foreign currency loans 314 410 490 560 640

Investments:Shares 27 60 60 68 75Debentures 63 30 20 22 25

Equity investments due to conversion 11 12 12 8 8Repayments:

Rupee Loans 72 50 48 41 53Foreign Currency Borrowings 334 335 343 327 336

Redemption of rupee debentures - 50 - - -Increase in receivables etc. 49 74 90 106 125Less: Increase in payable etc. (30) (62) (64) (68) (83)Payment of tax 36 42 56 66 80Payment of dividend 29 28 30 32 35Increase (decrease) in cash etc. 22 86 121 116 119

1776 2254 25C4 2769 3125

1/ Actual.

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

Contribution of Financial Institutions to Fixed Investment in Industry, 1970-71 to 1976-77(Rs. million)

1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77Amount Amount Amount Amount Amount Amount Amount

Gross Fixed Capital Formation * 24040 27430 33300 37250 43880 63910 66940Of which:Private Sector (PrivateCorporate and Cooperatives) 6210 7820 8250 10630 11650 20010 14060

Public Sector (Department andNon-Department undertakings) 17830 19610 25050 27620 32230 43900 52880

Ratios % /v % % % % %

DFC's industrial disbursementas % of total industrialinvestment of which 1128 4.7 1221 4.5 1822 5.5 2351 6.1 3010 6.8 3135 4.9 4150 6.2

ICICI 289 1.2 303 1.1 397 1.2 435 1.2 454 1.0 611 1.0 670 1.0

IDBI ** 87 0.4 115 0.4 301 0.9 515 1.3 426 1.0 555 0.9 972 1.5

IFCI 174 0.7 203 0.7 280 0.8 319 0.8 370 0.8 346 0.5 549 0.8

IRCI - - 11 0.4 35 0.1 52 0.1 80 0.2 47 0.1 108 0.2

SFC's 335 1.4 396 1.5 447 1.3 566 1.5 796 1.8 988 1.5 1052 1.6

SIDC's 111 0.5 124 0.5 166 0.5 185 0.5 267 0.6 264 0.4 350 0.5

UTI 51 0.2 16 0.1 56 0.2 78 0.2 76 0.2 49 0.1 60 -

LIC 81 0.3 53 0.2 140 0.4 201 0.5 541 1.2 275 0.4 389 0.6

DFC's industrial disbursement as7. of total private industrial in-vestment of which 1128 18.2 1221 15.6 1822 22.1 2351 22.1 3010 25.8 3135 15.7 4150 29.5

ICICI 289 4.7 303 3.9 397 4.8 435 4.1 454 3.9 611 3.1 670 4.8

* Gross fixed capital formation includes expenditure on construction and machinery and equipment.** Includes direct loans other than for exports and underwriting and direct subscription.

Source: 1. CSO, National Accounts Statistics, 1970-71 to 1976-77, January 1979 P. 120 for gross fixed capital formation in

the private sector and P. 52 for public sector.2. IDBI Annual Reports for DFC's disbursements.

5,

- 56- ANNEX 4

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA LIMITED

DOCUMENTS AVAILABLE IN PROJECT FILE

A. The Manufacturing Sector and the Financial System

Al. Papers presented at ICICI's Silver Jubilee Symposiumon Indian Industry.

A2. "Indian Economy: Recent Trends and Prospects, December1979" published by the Centre for Monitoring the IndiaEconomy in Bombay.

A3. "Annual Survey of Industries 1976-77, Summary Resultsfor the Factory Sector", published by the CentralStatistical Organization of the Ministry of Planning.

A4. Report on Currency and Finance by the Reserve Bank ofIndia, 1977-78, Volume 1.

B. Project Related Reports and Documents

B1. ICICI's Statement of Financial and Operating Strategy.

B2. Agreed Minutes of Negotiations, including supportingdocuments submitted by ICICI.

C. Selected Working Papers

Cl. Information prepared by ICICI for the IBRD appraisalmission of November 1979.