How Rajiv Lall plans to tansform IDFC into a financial co

By Pravin Palande/Forbes India

Rajiv Lall has set himself a Himalayan task: Transform IDFC from a project lender to a financial conglomerate. And convince the world it will work

July 20, 2009, began as just another day in the life of Rajiv Lall, the CEO and managing director of Infrastructure Development Finance Co. (IDFC). But everything changed at 11 a.m. Lall happened to go on a stock analyst call and say that rating agency Crisil had downgraded the rating of his company from AAA to AA+ citing delays in raising capital. Hell broke loose within minutes.

A television reporter, who was on the call, picked it up and sent it to the newsroom. The flash went out before the conference concluded. It had an immediate impact on the stock price and stock analysts went into a tizzy. A downgrade, they said, would make it hard for IDFC to borrow money and profitability would be hit.

Lall was upset at the hullabaloo. He felt this was not the first time people had misunderstood IDFC. Neither would it be the last. But that’s life. X-Men, hybrids and all things neither fish nor fowl have been viewed with suspicion.

Ever since it was started with an announcement from the erstwhile United Front government in 1996, IDFC has been looking for a clear identity. It is not a typical project lender but one for infrastructure, something that typically needs access to very long-term funds. It didn’t start as an investment bank or a brokerage but now owns SSKI, which is precisely such an entity. It isn’t a financial conglomerate but owns one of the biggest private equity firms in the country, IDFC Private Equity. This is not all. It plays the asset management game too through a mutual fund business that it purchased from Standard Chartered Bank.

“Four years ago, IDFC went to a client and all we could offer was a project loan. But today, the client sees that he can get equity financing from its funds, raise third party funds, IDFC MF can actually be holding (his) stock and (his) treasury can invest into IDFC mutual fund as well,” says Lall.

It is hard to say whether this is an average aggregation of assets or an armada with a clear intent. This has left many market analysts baffled about the role, purpose and strategy of IDFC. Rajiv Lall may be clear in his mind about what IDFC must do, but the wider world is yet to appreciate that.

The Policy Avatar
Rajiv Lall, born to a family of bureaucrats, has a stare that would do a young Nana Patekar proud. It is cold, unflinching and unnerving. Not only does he not suffer fools, even average intelligence can come in for heavy punishment from him. Educated in Oxford and Columbia, he is conversant in French and can understand Spanish and Mandarin. He was a partner at Warburg Pincus, the imperious and remote private equity firm. Lall also worked at the World Bank, another “commanding heights” institution.

Having worked at such places, he wants IDFC to be like these institutions from an expertise point of view. “We are in the business of infrastructure. But our talent is our people. Our business is based on knowledge. Infrastructure companies are not generally viewed that way,” says Lall.

IDFC certainly wasn’t. In its earlier avatar in the 1990s it was seen as a policy institute by some! It would specialize in infrastructure lending even beyond what the DFIs of the day could. Nasser Munjee, an HDFC old-timer, had given the top job at IDFC. But he took a more policy-based approach. He decided that he would create a firm that would be more than just a provider of capital. He thought the role of IDFC would be to create a policy framework and work with the government at various levels.

The government did not want him to intellectualise. It wanted him to lend. The BJP government, which was in power during 1998-2004 was very gung-ho on infrastructure, but was surprised to see very little lending on its book. The government floated a proposal to merge IDFC with State Bank of India. Munjee opposed that and had to go. That was in 2004. As luck would have it, the BJP government lost the elections that year and had to go as well. The UPA government came in and tried to hire a new head for IDFC. Almost a year would pass before IDFC got its leader — Rajiv Lall.

The Masala Mix
When Lall and Limaye came on board of IDFC in 2005, they had a big task ahead of them. The company did not have a senior management. Many good people had already left.  Total staff numbered 80. They knew that they had a powerful brand name under their fold. Now they needed to make this brand deliver a growth rate superior to what pure infrastructure lending could bring.

In some ways, Lall was the right man to transform IDFC. He particularly doesn’t like to hob-nob with corporate India and is always proud to tell you that he doesn’t play golf. On his working desk there is a picture of him bungee jumping and he quickly points out that bungee jumping is not a hobby. “The picture was a one off moment”, he says. Some who work with him find him unpredictable. “He has dry humour and one cannot make out if he is sarcastic or funny,” says someone who has worked with him closely. On most working days he avoids wearing a tie and a suit and at best can be said to be chilled out. But overall, the senior management agrees that he is the best thing that has happened to IDFC in the last four years. And his bureaucratic background keeps him connected to the right corridors in Delhi.

IDFC’s original targets — bridges, power stations, roads and ports — take a long-time in coming up and even longer to make money. So the payback often starts three to six years from the time money is lent out. That’s why Lall decided to make IDFC an infrastructure potpourri that it is today. The investment banking, private equity and even the mutual fund provide the booster dose to the sleepy returns that accrue from infrastructure.

The good thing for Lall is that there is a live example that it can learn from: Australian financial giant, Macquarie.

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