management discussion & analysis · 2010). immediately after the elections, the ministers who...

36 I D F C A N N U A L R E P O R T 09 –10

Essentially, IDFC’s business model is built on the strong foundation of its domain knowledge and intellectual capital in the field of infrastructure development. The Company utilises its deep understanding of risks and opportunities associated with different projects across the various stages of their project life-cycle. Based on this knowledge, IDFC devises appropriate products and financing structures that are critical to successful infrastructure financing. In doing so, IDFC constantly strives to identify and deliver value propositions for all its stakeholders, while mobilising domestic as well as global capital and channelling it for the development of infrastructure in India.

Over the years, IDFC has steadily broadened its business activities to cover a wide spectrum of services in the financial intermediation space. With the basic focus on infrastructure, it has expanded from the primary business activity of pure project financing and government advisory to asset management (both private and public), loan syndication, corporate advisory, investment banking, institutional brokerage and project development.

This expansion has been achieved through a mix of organic growth and strategic acquisitions. The Company’s consequential presence in different, yet inter-linked, financial services has contributed significantly in positioning IDFC as a ‘complete solutions provider’ in the infrastructure finance space in India.

While being driven by the power of knowledge and innovation, the Company realises the importance of excellence in execution to achieve

sustained growth in the highly competitive financial intermediation space.

In this respect, 2009-10 was an active year for IDFC. First, it had to work on re-calibrating its tactical business positioning given the changes in the macroeconomic environment after the global financial crisis of 2008-09. Second, it initiated a major internal programme to integrate various different businesses within the IDFC group to create a ‘One Company’ system and culture across all its entities. In essence, having created the base for the ‘one-stop shop for infrastructure financing’, the Company has focused on integrating its different business activities to embark on the next stage of growth.

T H E E XT E R N A L E N V I R O N M E N T A N D I D F C

Global financial markets have recovered strongly in 2009 since their troughs in the aftermath of the collapse of Lehman Brothers in middle of 2008. This recovery was spurred by improving economic fundamentals and sustained policy support. Risk appetite has returned, equity markets have improved, and capital markets have re-opened. As a result, prices across a wide range of assets have rebounded sharply off their historic lows, as the worst fears of investors of a collapse in economic and financial activity have not materialised (see Chart A). Consequently, systemic risks have continued to subside in the global financial system.

IN PERCENT

Asset Class Performance

Source: IMF

A

23

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TR

EA

SU

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S6

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Since its inception in 1997, Infrastructure Development Finance Company Limited (‘IDFC’ or ‘the Company’) has been a leading catalyst for private sector infrastructure development in India. IDFC focuses on developing and leveraging its knowledge base in the infrastructure space to devise and provide appropriate financing solutions to its diverse customers.

management discussion & analysis

37M A N A G E M E N T D I S C U S S I O N & A N A L Y S I S

GDP and Infrastructure GrowthB

9.0

6.1

9.0

5.8

7.2

5.4

6.7

3.0

9.7

8.3

INF

RA

ST

RU

CT

UR

E I

ND

EX

Source: CSO, Finance Ministry, Govt. of India

GD

P

05-06 06-07 07-08 08-09 09-10

IN PERCENT

Despite substantive overall improvement, the repair of the financial system is far from complete, and financial stability remains fragile. There are still pressing challenges. The first major challenge is to restore the health of the global banking system, especially credit provisioning. To do so, it is necessary that the de-leveraging processes under way in the global banking systems remain orderly and do not require such large adjustments as to undermine the recovery. The process of absorbing the credit losses is still under way, supported by ongoing efforts at raising capital.

At the same time, new risks are emerging as a result of the extraordinary support provided by the government interventions to rescue economies. Indeed, unprecedented policy support has come at the cost of a significant increase of risk to sovereign balance sheets and a consequent increase in sovereign debt burdens that raise risks for financial stability in the future. Greece is a case in point. Levels of deficit financing and public debt in the United Kingdom, Spain, Italy and Portugal are high, and potentially prone to downside risks.

While bank flows to emerging markets are yet to recover, the rebound in portfolio inflows has supported a rally in emerging market assets, particularly equities, and to a lesser extent real estate. Concerns have been raised that these inflows can lead to asset price bubbles and put pressure on exchange rates.

There is no doubt that IDFC is well positioned to benefit from the renewed risk appetite in the global financial market and the world’s confidence in emerging countries like India. Equally, continuing uncertainties in the system meant that the types of global capital available in 2009-10 in terms of investment tenure and costs have not been wholly in line with IDFC’s business requirements. As a result, during 2009-10, IDFC concentrated largely on mobilising and sourcing capital from India.

As far as the real economy was concerned in 2009-10, India displayed resilience and strength to withstand the global turmoil, but after a fairly serious scare in 2008-09.

After three continuous years of over 9% growth, shrinking global demand and associated fall in business confidence had reduced India’s annual GDP growth rate to 6.7% in 2008-09. More importantly, the prevailing economic conditions resulted in a major dip in investor confidence. Consequently, private sector investment in infrastructure reduced significantly. This is evident from the data

presented in Chart B, where infrastructure growth, as measured by the core infrastructure index, reduced to 3% in 2008-09.

The sluggishness continued in the beginning of 2009-10 especially leading up to the general election. With the election throwing up a stable Government, there was renewed confidence amongst investors in India. Thereafter, we have witnessed a steady pick-up in economic and investing activity, especially since the middle of the second quarter. The estimate from the Central Statistical Organisation (CSO) suggests that GDP growth for 2009-10 will be 7.2%. It may even touch 7.5%. Whatever the number, it is clear that India has recovered, and is poised to be back on its 8% plus annual growth trajectory. In line with improved economic activity and confidence in the Indian economy, infrastructure growth has also improved from 3% in 2008-09 to 5.4% in 2009-10 (April 2009 to January 2010).

Immediately after the elections, the ministers who assumed charge took some time in assessing the situation in their various ministries. Subsequently, the Government of India has started actively pushing large scale infrastructure development in key sectors. As a result, Q4 2009-10 witnessed a quantum jump in activity in the infrastructure sector.

Given this macroeconomic backdrop, IDFC adopted a well-calibrated business strategy, which evolved during the course of the year. In the initial part of the year, the Company’s plan was fairly cautious as it gauged the developments in business environment carefully. The focus was on:

■ Conserving capital and maintaining healthy capital adequacy norms

■ Focusing on generating more profits out of its existing businesses

■ Preserving asset quality ■ Aggressively contain costs

Essentially, it meant that in the first part of 2009-10, IDFC’s primary objective was to squeeze out greater profits while carefully calibrating balance sheet growth. It performed creditably during this phase. In the first nine months of 2009-10, the consolidated balance sheet grew by 13%, while Profit After Tax (PAT) increased by 42%.

As the year progressed, while the Company maintained these strategic goals, the market dynamics changed and there were far greater opportunities for infrastructure finance.


Although IDFC maintained an eye of caution and capital cushions in its balance sheet, the latter part of the year saw the Company being much more aggressive in mobilising capital and pushing for growth. Today, IDFC believes that it has built a strong foundation and, if the present trends in the infrastructure sector were to continue, it is poised for rapid growth.

I D F C ' S P E R F O R M A N C E H I G H L I G H T S

The Company’s business performance is given in Box 1.

There has been a significant increase in operating income both from direct lending activities and from the Company’s other businesses. The over 21% growth in net interest income has been a result of growth in the loan book as well as better spreads. With the return of confidence in the Indian stock markets and renewed corporate activity in fund raising and Mergers and Acquisitions (M&A), there has been a major revival in non-interest income, which increased by 55% in 2009-10.

While focusing on growth, IDFC maintained its focus on the quality of assets. As of March 31, 2010, IDFC had only 0.17% net non-performing assets (NPA). It had a capital adequacy ratio of 20.51% as of March 31, 2010, of which 17.36% is Tier I capital.

As reported in last year’s annual report, given liquidity concerns, a particular rating agency had taken a harsh stance regarding the capital cushion required to sustain the Company’s business. Subsequently, there was a ratings downgrade.

IDFC and its Board of Directors, however, had enough confidence in the adequacy of its internal accruals to drive growth, and did not believe in the need to raise capital in an unsure market to meet the rating agency’s demand for an exceptionally high capital requirement. The Company’s strategy has borne fruit. Growth was not hampered in 2009-10 and there was adequate capital on the balance sheet. This fact was further strengthened by ICRA, and FITCH which, in August 2009, reaffirmed the highest credit quality ratings to various debt instruments of the Company.

R E G U L ATO RY D E V E L O P M E N T S

During 2009-10, there were some regulatory developments which positively influenced IDFC’s business.

At the beginning of the year, the risk weight for bank’s exposure to Non-Banking Financial

Companies (NBFCs) was 120%. During the course of the year, Reserve Bank of India (RBI) reduced this to 100%, releasing more bank funds for NBFC financing. Thereafter, RBI linked the risk weights of banks’ exposure to NBFCs to the credit rating assigned to the NBFC by external credit assessment institutions. This has served well for NBFCs like IDFC, which has the very best credit ratings.

Thereafter, in the last quarter of 2009-10, RBI issued a notification introducing a new category of NBFC – namely, Infrastructure Finance Companies (IFCs). This is in addition to the existing categories of NBFCs, i.e. Asset Finance Companies (AFCs), Loan Companies (LCs) and Investment Companies (ICs).

According to RBI, to be recognised as an IFC, NBFC should deploy a minimum of 75% of total assets in infrastructure. In addition, such NBFC must have net owned funds of at least Rs.300 crore (Rs.3 billion), and a minimum credit rating ‘A’ or equivalent from CRISIL, FITCH, CARE, ICRA or comparable rating by any other accrediting rating agencies.

IDFC is well positioned to satisfy all these criteria, and is ideally suited to become an IFC. The re-classification as an IFC has several benefits.

■ The exposure of a bank to IFCs has been enhanced to 20% of its capital funds.

■ IFCs need to maintain a CAR of 15%, of which at least 10% should comprise Tier I capital. IDFC comfortably meets this requirement today; and will do so in the future.

■ IFCs will be allowed to do more business with projects and business groups. Exposure of NBFCs to a single project and a single business group are limited to 20% and 35% respectively of their net owned funds. However, in the case of IFCs, exposure to a single project and a single business group have been enhanced to 25% and 40% respectively of their net owned funds.

Therefore, the positioning of IDFC as an IFC will be a significant development in its effort to generate significant balance sheet growth from 2010-11.

T H E B U S I N E S S P L AT F O R M S

While fundamentally focusing on the business of infrastructure financing, IDFC’s business structure and organisation has grown and developed over the years. Today, the businesses can be classified under four broad platforms based on the fundamental nature of the underlying activities. These are:

GROSS LOAN BOOK

OPERATING INCOME

NET INTEREST INCOME

NON-INTEREST INCOME

PROFIT BEFORE TAX

PROFIT AFTER TAX 2

FULLY DILUTED EPS

NET ASSET-BOOK 1

27,445RS CRORE21%

UP

25,539RS CRORE22%

UP

2,107RS CRORE35%

UP

1,117RS CRORE21%

UP

950RS CRORE55%

UP

1,429RS CRORE38%

UP

1,062RS CRORE42%

UP

8.1240%UP

1 Comprising loan and equity participation, net of provisioning and diminution in value of investments. 2 Profit after tax after minority interest, including profits from associate companies.

Highlights of Consolidated Performance1


1 Corporate Finance and Investment Bank This includes the own balance sheet business of project finance, principal investments and treasury. It also includes the investment banking business of IDFC Capital and the institutional brokerage business of IDFC Securities.

■ Project Finance This is IDFC’s core business of lending to infrastructure projects. It is capital intensive and focuses on managing the loan book. While this creates the Company’s base income stream, it also provides IDFC with the bridge to clients to build larger and wider customer engagement.

■ Principal Investments and Treasury Principal investments comprise two distinct kinds of activities. First, there are strategic investments that are made by the Company to strengthen or develop any of its business platforms. Historically, this includes investments for the acquisitions like IDFC-SSKI (now renamed IDFC Securities) and IDFC-AMC. These are long term in nature and are not meant for direct returns. Second, there are the commercial investments, which typically supplement the lending business by infusing equity into projects. These could include investment in the Company's own private equity and project equity funds as well as selected direct investments in projects or companies. These are meant to create value appreciation over a period of time with the Company generating actual returns. The treasury function is primarily the back-bone for project financing. It focuses on liquidity management to provide sufficient funds at optimal costs. In addition, it also generates

returns by taking calls in the fixed income trading space.

■ Investment Banking and Institutional Brokerage These businesses were earlier under the IDFC-SSKI platform. The investment banking business has been restructured under IDFC Capital, while the institutional brokerage business is now undertaken by IDFC Securities. With the investment banking business focusing on advisory fees and the institutional brokerage business generating transaction based brokerage fees, the returns are generally high but volatile, given prevailing conditions in the capital market

2 Public Markets Asset Management This primarily comprises IDFC’s mutual funds business, which is operated through the IDFC Asset Management Company Limited (IDFC AMC). This business was acquired from Standard Chartered Bank. Here, the Company manages different mutual fund products for institutional and retail investors. Income is generated through asset management fees and the focus is on growing the assets under management by offering suitable products and channelling private and corporate savings into the debt and equity markets.

3 Alternative Asset Management This includes private asset management and pure project management. These are not capital intensive and returns are typically in the form of fund management fees – which have a fixed element and may be supplemented by a ‘carry’.

1 Return on Average Total Assets (RoA) tree

% of Average Total Assets

2009-10 2008-09

Infrastructure 3.3% 2.6%

Treasury 0.3% 0.5%

Net Interest Income 3.6% 3.1%

Principal Investments 1.1% 0.6%

Asset Management 0.9% 0.7%

Investment Banking 0.6% 0.4%

Infrastructure loan related fees 0.5% 0.4%

Non-interest Income 3.0% 2.1%

Miscellaneous Income 0.1% 0.1%

Operating Income 6.7% 5.3%

Operating Expenses 1.8% 1.2%

Provisions 0.4% 0.5%

Profit Before Tax 4.6% 3.5%

Provision for tax, Profit in Associate Co., Minority Interest etc.

1.2% 0.9%

Profit After Tax 3.4% 2.6%

Contributions of almost all

businesses, as a % of average total assets, increased significantly during FY 2009-10.


■ Private Asset Management It includes the large private equity and project equity funds that the Company has mobilised in partnership with other financial institutions. It also includes a fund of funds business that operates out of Singapore.

■ Project Management IDFC has extended its expertise in portfolio management outside the pure financial domain by starting the IDFC Projects Company in 2008-09. Here, the Company is focusing on leveraging its core strength of understanding project risk-return profiles, manage large and complex projects, build partnerships, enhance in-house skills, and develop credibility and hand-hold partners from end to end.

4 Advocacy and Nation Building While focusing on generating returns, IDFC provides leadership in developing cutting-edge concepts and frameworks in the infrastructure space in India. Through the IDFC Foundation, the Company plays a leading role in policy formulation and advocacy, institutional capacity building to structure public-private partnerships, providing government transaction advisory services and promotion of inclusive infrastructure through corporate social responsibility initiatives. These activities enhance IDFC’s knowledge base, reinforce it as a credible player in the infrastructure sector and fulfill the Company’s wider social goals.

These business platforms are well supported by a shared services platform that includes Information Technology (IT), Human Resource (HR), Compliance, Secretarial Services, Risk Management and Accounts.

R E T U R N O N A S S E T S ( R O A )

As a financial intermediary, the return generated on assets is a fundamental measure of performance for IDFC. While each of the different business platforms has different capital intensities, the returns they generate on the total balance sheet of the Company are critical in determining IDFC’s efforts at shareholder value creation. Table 1 gives the RoA tree for IDFC in 2009-10.

Contributions of almost all businesses, as a % of average total assets, increased significantly during FY 2009-10. Contribution from pure lending activities measured as Net Interest Income from infrastructure increased from 2.6% in 2008-09 to 3.3% in 2009-10. Increased spreads reflective of the benign interest rate environment through most of 2009-10 and increased traction in our lending

business were responsible for this enhanced contribution. The Net Interest Income from treasury declined from 0.5% to 0.3% on account of the challenging interest rate environment that we were in. Total Net Interest Income increased from 3.1% in 2008-09 to 3.6% in 2009-10. Non-Interest Income capturing contributions of our fee based businesses and principal investing increased from 2.1% to 3% across the two periods. Respective contributions from principal investing, asset management, investment banking & institutional broking and loan related &other fees increased from 0.6%, 0.7%, 0.4% and 0.4% in 2008-09 to 1.1%, 0.9%, 0.6% and 0.5% respectively in 2009-10. Operating income increased from 5.3% to 6.7%. The mix of Net Interest Income to Non-Interest Income was about 55:45 reflecting increased momentum in the lending business. It also captures the true diversification of our business model and how businesses requiring varying intensity of capital feed into the overall operating income.

Operating expenses increased from 1.2% in 2008-09 to 1.8% in 2009-10 largely accounted for by the increased traction in the market facing businesses; distribution, marketing, branding and product spend in our mutual fund business; and the changing compensation algorithm for the consolidated platform as a whole. Provisions were at 0.5% and 0.4% across the two periods.

The Profit Before Tax increased from 3.5% in 2008-09 to 4.6% in 2009-10. Taxes etc., increased from 0.9% to 1.2%. The Profit After Tax, defined as the Return on Assets, increased from 2.6% in 2008-09 to 3.4% in 2009-10. This would possibly be amongst the highest in the financial services landscape in India.

We now move on to greater details of the Company’s businesses in 2009-10.

C O R P O R AT E F I N A N C E / I N V E ST M E N T B A N K

This includes project finance, principal investments, treasury operations, investment banking and institutional brokerage

P R O J E C T F I N A N C E

In project finance, IDFC lends to customers through different financial instruments like corporate loans, project loans, loans against shares, subordinated debt, mezzanine finance and equity.

In line with the focus on creating a more stable asset base, the share of loans and debentures in IDFC’s total exposure has

RS. CRORE

Gross Approvals & Disbursements 09-10 (Rs. crore)C

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Q1 Q2 Q3 Q4


IN PERCENT

Share of IDFC's Total ExposureD

40.6

23.8

10.9

16.4

8.3

7.1

10.4

24.4

19.8

38.3

E N E R G Y

T R A N S P O R T A T I O N

T E L E C O M & I T

O T H E R S

I N D U S T R I A L , C O M M E R C I A L & T O U R I S M

0910

increased from 88.7% as on March 31, 2009 to 91.2% as on March 31, 2010, while that of equity and preference shares have reduced from 8.6% as on March 31, 2009 to 6.6% as on March 31, 2010. Within loans, too, loans against shares have reduced from 6.1% as on March 31, 2009 to 3.3% as on March 31, 2010.

The developments in the infrastructure lending business are in line with the business environment. As Chart C shows, the first three quarters of 2009-10 saw a steady growth in both gross approvals and gross disbursements. With greater opportunities in the market, there has been a further spurt in gross approvals in Q4 2009-10. In fact, gross approvals doubled from Rs. 6,648 crore in Q3 2009-10 to Rs.13,892 crore in Q4, 2009-10.

As is expected, when there is a spurt in new project opportunities, there is initially a flurry of approvals, while disbursements lag behind. This has been true for IDFC as well. However, it is important to note that disbursements, too, have started picking up. Disbursements increased by 64% in Q4 2009-10 over Q3, 2009-10.

Thus, there has been good growth in the project finance business in 2009-10; more importantly, the trend in approvals and disbursements indicates the presence of a significant pipeline of opportunities for IDFC to grow its loan book meaningfully in the next financial year.

■ Annual gross approvals, including equity and non-funded assistance, increased by 195% to Rs.30,442 crore (Rs.304 billion) in 2009-10, while net approvals grew by 326% to Rs.21,228 crore (Rs.212 billion).

■ Annual gross disbursements, including equity, rose by 60% to Rs.12,962 crore (Rs.130 billion) in 2009-10, while net disbursements grew from a negative Rs.382 crore [(-) Rs.3.8 billion] in 2008-09 to Rs.4,939 crore (Rs.49 billion) in 2009-10.

■ Net interest income from infrastructure lending activities increased by 35% from Rs.758 crore (Rs.7.6 billion) in 2008-09 to Rs.1,021 crore (Rs.10.2 billion) in 2009-10.

These activities led to a 22% increase in the net loan book from Rs.20,596 crore (Rs.206 billion) in 2008-09 to Rs.25,031 crore (Rs.250 billion) in 2009-10.

IDFC’s project finance business concentrates on four infrastructure sectors — Energy; Transportation; Telecom & IT and Industrial, Commercial & Tourism.

As Chart D shows, while its share has decreased slightly from 40.6% in 2008-09 to 38.3% in 2009-10, Energy still comprises the largest loan book exposure. The share of Telecom and IT has increased significantly from 10.9% in 2008-09 to 24.4% in 2009-10, making it the second largest sector. This is followed by Transportation, whose share has also dropped from 23.8% in 2008-09 to 19.8% in 2009-10. While that of Industrial, Commercial and Tourism has reduced from 16.4% in 2008-09 to 10.4% in 2009-10. The share of ‘Others’, which include new plays in steel and cement, has decreased. For good reason, with improvements in the business environment, IDFC has refocused in financing its core infrastructure segments.

E N E R G Y

India continues to have a huge power supply-demand deficit, and the Government of India is actively pushing power projects using the Private Public Partnership (PPP) route. Of late, the government has accelerated its efforts in large scale power projects, which offers larger opportunities for financing for companies like IDFC.

On the power generation front, while thermal power remains the dominant area, IDFC also has been pursuing hydro-electric projects. Renewable energy generation is another area where the Company has been actively partnering players in the wind energy space.

■ As on March 31, 2010, IDFC’s total exposure in the energy sector was Rs.16,800 crore (Rs.168 billion).

■ Gross approvals increased by 319% from Rs.2,180 crore (Rs.22 billion) in 2008-09 to Rs.9,131 crore (Rs.91 billion) in 2009-10.

■ Gross disbursements rose by 120% from Rs.1,865 crore (Rs.19 billion) in 2008-09 to Rs.4,112 crore (Rs.41 billion) in 2009-10.

Chart E plots the growth in net approvals and net disbursements in the energy sector in 2009-10 over 2008-09.

T R A N S P O R T AT I O N

In transportation, IDFC works on the financing of roads, civil aviation, airports, ports, container terminals, and gas and oil pipelines. Thanks to the active involvement of the new Minister for Surface Transport, the national highways programme got a fillip in the latter part of 2009-10. With a vision that focuses on national highway development at the rate of 20 kms a day instead of the close to 5 kms being developed

Vemagiri Power Generation Limited

388 MW Gas based Power Plant


per day as of now, a large number of projects are in the pipeline. There is also a paradigm shift away from awarding small packages covering short road sections to longer stretches, with significantly larger package sizes. Much of this activity is reflected in the increase in approvals in this sector, while gross disbursements are gradually picking up.

■ As on March 31, 2010, IDFC’s total exposure in the transportation sector was Rs.8,676 crore (Rs.87 billion).


■ Gross disbursements grew by 21% from Rs.1,476 crore (Rs.15 billion) in 2008-09 to Rs.1,793 crore (Rs.18 billion) in 2009-10.

Chart F plots the growth in net approvals and net disbursements in transportation sector in 2009-10 and 2008-09.

T E L E C O M M U N I C AT I O N A N D I T

While telecommunication in today’s India is fairly mature, comprising some very large players who have strong balance sheets, there is opportunity in financing the new entrants that were awarded licenses in 2007-08 and are poised for accelerated pan-India growth. IDFC has been leveraging this customer base, while focusing on other opportunities in the telecom infrastructure space, especially telecom towers. IDFC managed to secure some large ticket size deals in this space during 2009-10, which has significantly increased the Company’s exposure in this sector. In addition, going forward, there are opportunities expected, post the 3G auctions.

■ As on March 31, 2010, IDFC’s total exposure in the telecommunication and IT sector was Rs.10,705 crore (Rs.107 billion).

■ Gross approvals rose by 199% from Rs.4,150 crore (Rs.42 billion) in 2008-09 to Rs.12,401 crore (Rs.124 billion) in 2009-10.

■ Gross disbursements increased by 27% from Rs.2,885 crore (Rs.29 billion) in 2008-09 to Rs.3,670 crore (Rs.37 billion) in 2009-10.

Chart G plots the growth in net approvals and net disbursements in the Telecommunication and IT sector in 2009-10 and 2008-09.

C O M M E R C I A L , I N D U ST R I A L

I N F R A ST R U CT U R E , T O U R I S M A N D

O T H E R S

Given the uncertainties in the real estate sector — primarily commercial real estate — IDFC has been cautious in this segment. However, in a calibrated manner, and based on the past record of various promoters, the Company continues to invest in this space.

■ As on March 31, 2010, IDFC’s total exposure in the Commercial, Industrial infrastructure sector, tourism and others was Rs.5,638 crore (Rs. 56 billion).


■ Gross disbursements grew by 89% from Rs.1,454 crore (Rs.15 billion) in 2008-09 to Rs.2,742 crore (Rs.27 billion) in 2009-10.

Chart H plots the growth in net approvals and net disbursements in the commercial and industrial infrastructure sector in 2009-10 as well as 2008-09.

RS CRORE

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09 10 09 10

NET APPROVALS & DISBURSEMENTS


RS CRORE

09 10 09 10

151

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0

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T A

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T D

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TransportationFNET APPROVALS & DISBURSEMENTS

P R I N C I P A L I N V E S T M E N T S

Principal investments are directly made from the Company’s own balance sheet, which form part of proprietary investments. There are four types of investments in this portfolio:

■ Strategic investments, where IDFC picks up stake in entities to further strengthen its business offering or for some strategic purpose that is central to the Company’s long term objectives. In 2009-10, no investments were made on this front.

■ Financial investments, includes investments in National Stock Exchange of India Limited (NSE), Securities Trading Corporation of India Limited (STCI) and Asset Reconstruction Company of India Limited (ARCIL).

■ Investment in venture capital units, for funds which are sponsored and managed by IDFC.

■ Infrastructure investments, which are now generally made as co-investments alongside the funds under the Company's management or in deals that do not meet the funds minimum size threshold.

Total outstanding disbursements in principal investments increased by about 20% in 2009-10.

■ As on March 31, 2010, total exposure on IDFC’s equity asset book, excluding strategic investments, was Rs.3,153 crore (Rs.32 billion).

■ Outstanding disbursements, on the equity book, increased by 19% from Rs.1,724 crore (Rs.17 billion) on March 31, 2009 to Rs.2,057 crore (Rs.21 billion) on March 31, 2010. Of this, Rs.352 crore (Rs. 3.5 billion) was financial equity; Rs.1,082 crore (Rs.11 billion) was infrastructure equity; and Rs.400 crore (Rs.4 billion) was in the form of venture capital.

■ Income from the Company’s principal investments, which includes dividends and capital gains, increased by 81% from Rs.184 crore (Rs.2 billion) in 2008-09 to Rs.333 crore (Rs.3 billion) in 2009-10.

T R E A S U R Y

The treasury function is bifurcated into two areas. It principally maintains sufficient liquidity to support the project finance operations. During 2009-10, bulk of the emphasis was on this area. With the loan book growing significantly, maintaining liquidity with reasonable cost of funds was a challenge. Focusing on domestic capital markets, IDFC went into serious fund raising. In doing so, it also managed to lower the cost of funds on the balance sheet. There was also the challenge posed by the fact that the market was characterised by near-term money with falling interest rates, while IDFC’s assets were mostly in the form of longer term finance. The Company, however, still managed to expand its balance sheet by maintaining effective duration relationships between its assets and liabilities.

As on March 31, 2010, the asset duration was 1.95 years while the liability duration was 1.75 years. This bears testimony to the business’ ability to forecast and take appropriate calls in the fixed income markets without taking undue risks.

Uncertainties on the length of liquidity and a falling interest rate system meant that the proprietary treasury book (where investments are made in fixed income securities for returns) remained constrained.

■ Treasury assets decreased by 11% from Rs.5,672 crore (Rs.57 billion) on March 31, 2009 to Rs.5,045 crore (Rs.50 billion) on March 31, 2010.

■ Net interest income from treasury operations decreased by 41% from Rs.164 crore (Rs.1.6 billion) in 2008-09 to Rs.96 crore (Rs.1 billion) in 2009-10.


I N V E S T M E N T B A N K I N G A N D

I N S T I T U T I O N A L B R O K E R A G E

This includes the businesses of IDFC Capital and IDFC Securities, which was earlier under IDFC-SSKI platform. It utilises in-house expertise and brand positioning to provide a gamut of advisory services across different areas like debt syndication, structured finance, corporate debt and equity market advisory. Total income from this platform increased by 59% from Rs.115 crore (Rs.1.2 billion) in 2008-09 to Rs.183 crore (Rs.1.8 billion) in 2009-10.

With an improvement in the business environment, there was an increase in opportunities in the investment banking space. IDFC Capital undertook the first QIP offer in India for 2009-10. Subsequently, it played a leading role in similar deals that also included debt and PE placements. By March 31, 2010, it was ranked No. 2 in terms of number of deals and No.3 in terms of amount raised by private sector in equity market during the year 2009-10. As a result, income from investment banking and advisory fees increased by 118% from Rs.51 crore (Rs.0.5 billion) in 2008-09 to Rs.111 crore (Rs.1.1 billion) in 2009-10.

On the institutional brokerage front, too, there was a growth in the level of activity in 2009-10 compared to 2008-09. While opportunities increased, competition was fierce. As a result, IDFC Securities did lose some market share. However, with greater volumes, there was an increase in brokerage income. Institutional brokerage income rose by 13% from Rs.64 crore (Rs.0.6 billion) in 2008-09 to Rs.72 crore (Rs.0.7 billion) in 2009-10.

P U B L I C M A R K E T S A S S E T M A N A G E M E N T

This business is administered through the asset management company - IDFC AMC and IDFC Investment Advisors. The primary business is IDFC mutual fund, which was acquired in 2008 from Standard Chartered Bank. Through concerted efforts at pushing sales by creating and nurturing wider and improved channels, offering a larger basket of products and targeting a more varied customer base, IDFC has grown its mutual fund business. The assets under the Mutual Fund’s management increased from Rs.14,362 crore (Rs.144 billion) as on March 31, 2009 to Rs.25,775 crore (Rs.258 billion) as on March 31, 2010. With this growth, IDFC Mutual Fund has the tenth largest AUM amongst mutual funds in India. Several new products were introduced during the year, which were well accepted.

IDFC Investment Advisors targets High Net worth Individuals (HNIs) for personal wealth management. This channel has an AUM of Rs.433 crore.

Total operating income of IDFC AMC and IDFC Investment Advisors increased by 89% to Rs.133 crore (Rs.1.3 billion) in 2009-10.

A LT E R N AT I V E A S S E T M A N A G E M E N T

This includes private equity, project equity, projects and fund of funds. As of March 31, 2010, the total AUM across private equity and project equity business was Rs.9,200 crore (US$ 2 billion at exchange rate of US$1=Rs.44.94).

P R I V A T E E Q U I TY

IDFC’s private equity business focuses on generating returns by providing equity-based risk capital to early stage as well as fast growing infrastructure companies. This business is undertaken through its wholly-owned subsidiary, IDFC Private Equity Company Limited (‘IDFC Private Equity’).

IDFC Private Equity manages a corpus of Rs. 5,992 crore through three funds - India Development Fund (the Fund I), IDFC Private Equity Fund II (the Fund II) and IDFC Private Equity Fund III (the Fund III).

The Fund I, which closed in March 2004 with capital commitments of Rs.844 crore, has paid back original corpus to the investors. There were two full exists from the investments of the Fund I. The Fund II, which closed in June 2006 with capital commitments of Rs.1,988 crore, has been entirely invested and focuses on portfolio management and exits. The Fund III, which closed in September 2008 with capital commitments of Rs.3,160 crore, focuses on portfolio management and new deals.

As of March 31, 2010, total assets under IDFC Private Equity’s management were US$ 1.2 billion or Rs.5,364 crore ( Rs.54 million at exchange rate of US$1 = Rs.44.94). Given the low levels of activity, operating income was maintained at Rs.99 crore (Rs.1 billion).

During the year, IDFC Private Equity won three awards: (i) the Asian Infrastructure Fund Manager of the Year award by Infrastructure Investor, (ii) the Asian Infrastructure Deal of the Year award by Infrastructure Investor and (iii) the Indian Private Equity Fund of the Year Award by Private Equity International.

P R O J E C T E Q U I TY

IDFC’s project equity invests in operating assets of mid-size projects. Much of these investments

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are in the post-construction and stabilisation stage, with the underlying assets getting aggregated and bundled into a holding company before being sold off at better valuations. These have lower risk-return profiles compared to the pure private equity plays.

IDFC, along with partners, achieved final closure of the India Infrastructure Fund in June 2009 with total commitments of Rs.3,837 crore (US$ 875 million at exchange rate of US$1=Rs.44.94). IDFC has invested US$100 million in this Fund. The Fund has called 36.1% of its capital commitments as of March 31, 2010.

In line with market conditions in 2009-10, there were no further efforts in raising more capital. Instead, the focus was on doing deals. The Fund has committed 45.6% of its total corpus to portfolio companies as of March 31, 2010.

Operating income from Project Equity increased by 45% to Rs.64 crore in 2009-10.

I D F C P R O J E C T S

IDFC started the IDFC Projects Company in 2009. This is the Company’s foray into becoming an infrastructure developer. In the project development space, this entity believes in developing its businesses based on the following:

■ Leverage core strengths Utilise the internal strength of better understanding of risk profiles, bidding strategies, and established contract and implementation structures. Create value through use of appropriate financial instruments and structures at various stages of the projects. Focus on projects which have first mover and strategic advantages, and use such projects to enter other initiatives.

■ Develop larger and more complex projects Occupy niche areas of large capital intensive projects which are complex in nature but have long term stable cash flows. Participate in more number of projects via the bidding route through which most opportunities get generated.

■ Build partnerships Forge successful relationships with leading national and international partners and achieve domain expertise and technical collaboration. Seek co-developers who have goals, strategies and values consistent with those of IDFC Projects.

■ Establish credibility Build a reputation for efficient operations and fair practice.

IDFC Projects has forged successful relationships with national and international organisations for domain expertise and

technical collaboration. In 2009-10, it successfully bid for setting up a 1,050 MW coal fired power plant for Dheeru Powergen Private Limited (DPPL) at village Dhanras, Tehsil Katghora, in the Korba district of Chhattisgarh in India. DPPL is a joint venture company between IDFC Projects Limited and Ranhill Dheeru Malaysia (RDM), Malaysia.

I D F C G L O B A L A LT E R N A T I V E

Based in Singapore, IDFC Global Alternatives (IDFC-GA) is a global emerging markets private equity fund-of-funds business. IDFC-GA will focus mainly on Asia and is currently in active fund raising mode.

I D F C F O U N DAT I O N

IDFC’s development agenda, which earlier was promoted through various parts of the platform, is now pursued through a dedicated division of the Company, namely, IDFC Foundation. The Foundation’s activities are overseen by a separate Governing Board and comprise four core activities – Policy Advocacy, Capacity Building, Government Transaction Advisory Services and Corporate Social Responsibility (CSR) initiatives.

P O L I C Y A D V O C A C Y

Since inception, IDFC has played a pivotal role in advising governments at various levels in developing policy, legal and regulatory frameworks that enable the sustainable growth and development of various infrastructure sectors, provide affordable and high quality services to users and encourage private investment in infrastructure. While much progress has been made in telecommunications, roads, ports and airports, the Foundation now focuses on energy, especially in the global context of reduced carbon emission commitments, urban development, rail services, health care and education. To guide these initiatives, the Foundation has constituted dedicated advisory boards – Energy Advisory Board and Urban Advisory Board comprising prominent and knowledgeable persons in these areas.

In the energy sector, the focus continues to be on promoting initiatives to minimize losses in energy distribution as well as in enlarging the scope of power generation from cleaner and renewable sources of energy, to promote low carbon use. In the urban sector, the focus is on areas such as sustainable urban planning and development through creative ways of using

Gujarat Pipavav Port

Coal yard with wind and water curtain


land to support urban growth, water and waste water management, solid waste management and public transportation systems. Specific initiatives are already underway to set up a centre for low carbon, develop a model PPP programme for rail development, promote guaranteed land title systems and review the central government’s Jawaharlal Nehru National Urban Renewal Mission (JNNURM) programme.

The policy advisory group is also developing an infrastructure index that would enable comparison of infrastructure services across different states. Together with the Indian Institute of Management, Ahmedabad and Indian Institute of Technology, Kanpur, under the auspices of the 3-i Network, the group prepares the India Infrastructure Report every year, which has emerged as a standard reference document for infrastructure in the country.

C A P A C I TY B U I L D I N G I N I T I A T I V E S

One of the constraints to the development of infrastructure through public private partnerships (PPPs) is the lack of capacity in government departments, especially in states and urban local bodies in preparing projects under PPP frameworks. To help address this issue, IDFC has set up the India PPP Capacity Building Trust as a dedicated entity that would provide capacity building and training to government officials in the area of PPPs.

The Trust has been appointed by the Department of Economic Affairs, Ministry of Finance, Government of India as the executing agency for implementing a national capacity building programme for training officials of

state governments, urban local bodies and select Central government departments, through existing institutes of public administration across seven states and three central training institutes. The first phase of this programme is largely funded by KfW Development Bank. The Trust is currently engaged in developing a syllabus, training material, course outlines and programmes for the training of trainers from these institutes, which is expected to result in improved capacities in preparing and managing PPP projects across various infrastructure sectors.

In the meantime, several capacity building programmes have already been conducted across various states, some of which, focusing on the urban sector, have been in partnership with the Administrative Staff College of India, Hyderabad. A few programmes have also been conducted overseas, in the neighbouring countries of Nepal and Sri Lanka, on behalf of the United Nations Development Programme (UNDP), Nepal and the Commonwealth Secretariat.

G O V E R N M E N T T R A N S A C T I O N A D V I S O R Y

S E R V I C E S

The Foundation continues to be engaged in providing transaction advisory services to governmental departments and agencies engaged in infrastructure, with a particular focus on state highways, urban services, transport systems, railways, healthcare and education. The objective is to promote private sector engagement in areas that would substantially benefit from the flow of private


capital and management expertise, resulting in vastly improved standards of service for users. For this purpose, IDFC consciously focuses on states hitherto considered “difficult”, but which now demonstrate a propensity to change. This activity clearly reflects the Company’s position as a pioneer, careful risk taker and thought leader in infrastructure.

A substantial part of this work is accomplished through IDFC’s joint ventures with a few state governments, namely Infrastructure Development Corporation (Karnataka) Limited (iDeCK), Uttarakhand Infrastructure Development Company Limited (U-DeC) and Delhi Integrated Multi-Modal Transit Systems Limited (DIMTS). While iDeCK and U-DeC focus on all areas of infrastructure across the respective states, DIMTS assists in the development and improvement of public transport systems in Delhi. It has been generally acknowledged that the involvement of these agencies have made a substantial difference to the way PPPs have been used to develop infrastructure in these states.

C O R P O R A T E S O C I A L R E S P O N S I B I L I TY

Corporate Social Responsibility (CSR) at IDFC is focused on making our business practices more environmentally and socially responsible. This is effected by (i) assessing and mitigating the environmental & social impacts of our investments in infrastructure projects, and

(ii) minimizing the environmental impact and carbon footprint of our operations through resource efficiency & conservation. CSR also includes an active volunteering program aimed at increasing our employees’ environmental and social sensitivities, besides high standards of corporate governance, maintaining our reputation for ethical and fair business practices and improving transparency in our interactions with our stakeholders.

In FY2010, IDFC became India’s first signatory to the Principles for Responsible Investment (PRI), a global, collaborative, investor network initiated by the UN in 2006, which aims to help investors integrate consideration of environmental, social, and governance (ESG) issues into their investment decision-making and ownership practices, and thereby improve long-term returns to beneficiaries. IDFC has joined the PRI under the category “Investment Manager” for its private equity, project equity and fund-of-funds businesses. IDFC continues to be a member of the United Nations Global Compact and a signatory investor and respondent to the Carbon Disclosure Project.

IDFC launched its internal environment policy aimed at minimizing its environmental impact and carbon footprint under the “Go Green” initiative. It is on course for obtaining US Green Business Council’s LEED Gold Certification (Commercial Interiors) for its new office at

2 Abridged Consolidated Profit and Loss Account for IDFC

RS. CRORE 2009-10 2008-09

TOTAL OPERATING INCOME 2,107 1,556

of which

Infrastructure Income 1,021 758

Treasury 96 164

TOTAL NET INTEREST INCOME 1,117 922

Principal Investments 333 184

Asset Management 290 203

Investment Banking 183 115

Infrastructure loans related fees 144 110

TOTAL NON-INTEREST INCOME 950 613

Other Miscellaneous Income 40 20

TOTAL OPERATING EXPENSES 549 367

PRE-PROVISIONING PROFITS 1,558 1,189

Provisions and Losses 130 153

PBT 1,429 1,036

Tax 367 278

PAT 1,062 758

Associated Company Profits 1 1

Minority Interest & Pre-acquisition Profits 0 9

CONSOLIDATED PAT AFTER MINORITY INTEREST 1.062 750


Chennai and (possibly India’s first) certification for an Energy-Efficient Data Centre from TUV Rhineland, Germany.

The Foundation also initiated the Inclusive Infrastructure Fund, a small corpus formed out of its own funds for funding social enterprises or innovative environmental projects. The Fund made its first equity investment in Ziqitza Healthcare Ltd., a company that provides emergency response ambulance services (“Dial 1298” in Mumbai) under an innovative business model where better-off patients (i.e. those admitting to private hospitals) cross-subsidize poorer patients (i.e. those admitting to municipal hospitals). It has also approved a second investment in a company that imparts civil construction skills to unemployed rural youth and places them directly with construction companies after training. Several other investment opportunities are under consideration in areas such as rural solar lighting, municipal solid waste based bio-methanation plants, etc.

The Foundation signed an MoU with the Hampi World Heritage Area Management Authority and the Gram Panchayat of Anegundi Village for grant funding of an innovative rural community sanitation upgradation project, which is expected to serve as a prototype for infrastructure upgradation in the Hampi area.

O N E F I R M : I N T E G R AT I N G I D F C ’ S B U S I N E S S P L AT F O R M S

All these different activities within IDFC are interwoven through fairly complex business structures. The Management realised that it was essential for the success of IDFC to create a unifying culture and governance system across the different businesses to best leverage each platform. During 2009-10, the Company launched an intensive programme to integrate the different blocks of IDFC’s business. This initiative, called ‘One Firm’, cuts across functional domains like human resource, internal processes and systems, risk management and corporate governance.

The goal is to align all sections of the organisation internally to generate even better customer value propositions and returns to shareholders. It focused on softer aspects like customer orientation, collaboration across platforms and efforts to leverage different capabilities across departments and businesses.

While this initiative is an ongoing process, special mention needs to be made of the developments during the year on three broad

fronts, which form the backbone of the initiative. These include cultural integration, implementation of a more comprehensive risk management framework and creation of an organisation-wide governance structure.

C U LT U R A L I N T E G R A T I O N

On the culture integration front, through widespread employee participation, the Company’s mission and values were discussed. Then these concepts were then communicated across the organisation. The entire process was carried out through intensive employee engagement, especially through workshops.

The values system articulated hinges on the acronym – INSPIRE (Integrity, Nurturing Humility, Stewardship, Partnership, Initiative, Responsibility and Excellence). The Company is in the process of:

■ aligning internal frameworks and policies to reflect the values articulated.

■ launching the intranet, which becomes a virtual space for employees to connect, collaborate and communicate.

■ supporting this initiative through a recognition programme that promotes employees for setting examples in living the values.

■ incorporating ’Values Performance’ into the performance management process.

R I S K M A N A G E M E N T

Essentially, a company like IDFC is exposed to three categories of risk: market risk, credit risk and operational risk. The Company is implementing an Enterprise Risk Management (ERM) framework that adopts an integrated approach to managing all the three types of risks across all entities in the IDFC group.

On the market and credit risks front, IDFC has had a strong risk management framework in place. There is focus on loan portfolio assessment, Asset-Liability Management (ALM), and loan pricing. In addition, the Company has been developing various market risk modules.

On the credit risk front, there is a comprehensive portfolio review of all project assets and equity investments of the Company on a semi-annual basis. Each credit is analysed individually and then integrated at the portfolio level. The overall portfolio risk report is regularly presented to a Board Committee comprising of independent directors.

The Risk Group also closely focuses on ALM. To enhance the effectiveness of the current

During 2009-10, the Company launched an

intensive programme to integrate the different blocks of IDFC’s business. This initiative, called ‘One Firm’, cuts across functional domains like human resource, internal processes and systems, risk management and corporate governance.

Ashoka Buildcon

National Highway Project on NH - 6


process of regular monitoring of liquidity and interest rate risks, IDFC has sourced a sophisticated software-based ALM system. This will enable the Company to capture data from various disparate platforms, and allow for more detailed and comprehensive analysis.

Given the rising volatility of interest rates as well as introduction of new products in the treasury portfolio, IDFC has also increased the level of monitoring of market risk. This involves measuring interest rate risk on a regular basis as well as testing newer models for analysis. With the regulatory framework for banks and financial institutions is currently in transition to the Basel II environment, the risk measurement and monitoring framework is being accordingly enhanced. IDFC has initiated efforts to align the capital allocation to different asset categories in line with the Basel II framework.

In 2009-10 there was a concerted effort to focus on organisation-wide operations risk management framework. While the initiative was launched with awareness created at the Board level and downwards, the implementation process was bottoms-up. The purpose was to make every department across different business segments aware of the risks related

to its operations and then work on managing some of the top risks in terms of probability of occurrence and impact. The exercise included identifying risks, classifying them in terms of probabilities and impact and devising control measures. The risks were classified first in a 3 x 3, and subsequently by a 5 by 5 matrix. A system has also been devised to convert these into department-wise and unit-wise heat maps.

The risk management system is supported by customised software, which:

■ allows real-time tracking and monitoring of all types of risks;

■ provides precise information on activities, risks and controls to all;

■ has the capability to track, understand and manage information across the organisation;

■ generates risk heat maps at all levels of the business;

■ shows the list of open issues at any point of time;

■ enables setting up central repository for all policy and procedures;

■ enables standardising of all group policies and procedures;

■ provides trend analysis on risk history to take proactive measures.

On the culture integration

front, through widespread employee participation, the Company’s mission and values were discussed. These concepts were communicated across the organisation.


Especially on the risk management front, there are separate active sub-committees. These include the Portfolio Review Committee (for portfolio or credit risk), the Asset Liability Committee (for market risk) and the Operational Risk Committee (for operational risk). The Managing Director or his nominee and a Board member are part of these committees, in addition to other functional managers.

2009-10 was the first year of this initiative. Going forward it will be developed with a greater degree of sophistication in gauging the probability and impact of risks.

G O V E R N A N C E S T R U C T U R E

The entire company is governed by a structure that cuts across the different businesses. At the top of this structure are six Board-level committees – the Executive Committee, the Audit Committee, the Compensation Committee, the Investor Grievance Committee, the Risk Committee and the Nomination Committee. The terms of reference, mandate, constitution, quorum and periodicity of meetings of these committees have been re-defined in line with business requirement. These committees are supported by sub-committees at the unit level and responsibilities and reporting structures are linked across all entities within IDFC.

F I N A N C I A L R E V I E W

The abridged consolidated Profit & Loss accounts of IDFC for 2008-09 and 2009-10 are presented in Table 2.Highlights of the performance are:

■ Total operating income increased by 35%, driven by a 21% increase in net interest income and a 55% growth in non-interest income

■ Within interest income, there was a significant growth of 35% in income from infrastructure lending, and this growth was on a large base. Treasury income reduced by 41%

■ Non-interest income increased across all platforms – income from principal investments increased by 81%; asset management increased by 42%; investment banking increased by 59%; and loan related and other fees increased by 30%

■ The healthy growth in operating income has resulted in a 31% increase in pre-provisioning profits to Rs.1,558 crore (Rs.16 billion) in 2009-10

■ With lower provisions, Profit Before Tax (PBT) increased by 38% to Rs.1,429 crore (Rs.14

billion) in 2009-10; And; PAT increased by 42% to Rs.1,062 crore (Rs.11 billion) in 2009-10.

I N F O R M AT I O N T E C H N O L O G Y ( I T )

IDFC recognizes the power of technology and continues to augment technology resources to streamline & standardize processes, provide faster response to clients and also effectively network the different companies, branches and operations. This year the technology operation were realigned in a manner to provide IT services in a shared manner across the IDFC group through centralizing the IT operations, creating helpdesk operations, outsourcing routine activities and through upgrading and integrating all the networks. Considerable effort has also been made to upgrade all the hardware, storage and network with a view to be current on technology and to support the growth in operations. All key offices of all companies are connected on an online basis to our network including our overseas office at Singapore. Alongside this upgrade, steps like network segregation, critical equipment failover & redundancy & endpoint security were initiated to enhance the network security, availability & robustness. The technology team helped the securities electronic trading business to increase the client offering through the low-touch direct market access (DMA) system and now this operation is also geared to provide a no-touch DMA to its clients.

An implementation of group wide VoIP (Voice over Internet Protocol) based phone system, integrated with our data and video network has helped in bringing people together in a cost-effective manner. A key activity this year was the shifting of almost all offices of IDFC which included shift of many client-facing and time sensitive operations including the complex dealing room operations. A well orchestrated effort by the IT team ensured a smooth transition into the respective new premises with no downtime on all critical operations.

There has been consistent progress in building newer applications to meet the growing need for improved operations and enhanced information needs. The year saw a push in this direction in view of the growth plans and the diverse nature of our acquired businesses. Among many initiatives in the software applications front, Ismart, Treasury & HR software were the key implementations with wideranging impact. In collaboration with the user teams we have stabilized the operations of ‘iSmart’, our core business application. The

In 2009-10 there was a concerted effort to focus

on organisation-wide operations risk management framework. While the initiative was launched with awareness created at the Board level and downwards, the implementation process was bottoms-up.


Oracle financials software has been upgraded to include all companies in the group so as to enable consolidation of accounts at the group level. An upgrade of our software supporting the treasury has been initiated that will ensure seamless pass through transaction from front office to backoffice. A Human Resources application on peoplesoft platform has also been rolled out across the group to provide a ‘consistent user experience’ to all employees. Corresponding consolidation & upgradations in the key system software and databases have also been carried out during this year to provide stability.

IDFC continues its thrust on IT compliance by enlarging the scope of various security measures to all companies in the group as well as to the key partners to our businesses. After a three year initial cycle, the company was recertified as an ISO 27001 compliant company through a comprehensive audit of our IT operations in September this year. This year the IT operation of our mutual fund business was also certified to be ISO 27001 compliant. To enhance the hygiene of our systems IDFC continued with the practice of subjecting its IT operations across all companies to a comprehensive IT audit by a reputed external firm and this audit was completed in March 2010. IDFC continues to keep information security focus also by improving the awareness levels across the group through its various initiatives like e-learning, lectures, etc.

IDFC has also initiated various steps towards Green-IT including deploying energy efficient equipment, monitoring energy consumption at a granular level and disposing e-waste only through Government authorized recycler organization.

I N T E R N A L C O N T R O L S A N D T H E I R A D E Q U A CY

The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, and that the transactions are authorised, recorded and reported correctly.

Internal controls are supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. These controls are designed to ensure that financial and other records are reliable for preparing financial information and other reports, and for maintaining regular accountability of the Company’s assets.

C A UT I O N A RY STAT E M E N T

Statements in this Management Discussion and Analysis describing the Company’s objectives, projections, estimates and expectations may be ‘forward looking statements’ within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Company’s operations include unavailability of finance at competitive rates — global or domestic or both, reduction in number of viable infrastructure projects, significant changes in political and economic environment in India or key markets abroad, tax laws, litigation, exchange rate fluctuations, interest and other costs.

The goal is to align all sections of the

organisation internally to generate even better customer value propositions and returns to shareholders.

management discussion & analysis · 2010). immediately after the elections, the ministers who...

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