India - Second Industrial Credit Project

R E S T R I C T E D Report No. P-200 FILE COPY This report was. prepared for use within the Bank, In making it available to others, the'Bank assumes no responsibility to them for the 'accuracy or completeness of the Information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA, LIMITED July 6, 1959  DITERNATIONAL BANK F0'2 RECOKS TEUCTION MIID DEVELOPiiENT REPORT aND RECOYiEINDATIONS OF THE PRESIDENT TO TIIE EXECUTIVE DMIRCTOriS ON A PROPOSED LOAN TO THE DJDUSTiiIkL CHEDIT iiND INVESTIfNT CORPO_TN OF fLiDL, LI1ITED 1s I submit herewith the following report and recommendations on a proposed loan in an amount in various currencies equivalent to U.S. $10 million to The Industrial Credit and Investrment Corporation of India, Limited (ICICI). PART I - IIISTORLICAL 2e ICICI is an investment institution whose purpose is to assist the development of private industry in India. The Corporation was established in Bombay in January 1955 after discussions conducted in India and abroad under the auspices of the Bank, and with capital subscribed by private investors in India, the United Kingdom and the United States. In IMIarch 1955 the Government of India granted to it a thirty-year, interest-free advance of Rs. 75 million t$15.8 million), and the Bank at the same time made a loan of dplO million to provide foreign exchange resources to ICICI1 3. The Corporation at f'irst had a Board of eleven members, including two elected by the British shareholders, one by the american shareholders, and one appointed by the Indian Government. In December 1958 the Board membership was increased to sixteen to allow wiider geographical representation of Indial interests and to permit broader representation of foreign capital. Since the spring of 1958 the Corporation has been under entirely Indian management, In february 1959 the Bank released a senior member of its staff for one year to serve as advisor to the management. 4. The 1955 Bank loan was not drawn on immediately as Indian industrialists at that time had no difficulty in obtaining foreign exchange from the Government for imports of capital equipment and therefore did not need to assume the risk involved in borrowqing in a foreign currency. How- ever, with the growing strain on India's foreign exchange resources during India's Second Five-Year Plan, private industries began to look toward ICICI as the only source of foreign exchange for projects other than those included in the Plan. Early in 1959 the Corporation foresaw that the first Bank loan would probably be conmmitted by ICICI before the end of the year. In April 1959 ICICI approached the Bank for a second loan of ;10 million. In May 1959 a Bank staff member visited Bombay to review ICICI's operations and prospective capital needs. 5. Negotiations on the proposed loan to ICICI opened in 1lashington on June 9 with Mr. G. L. Mehta, Chairman of ICICI Board, and iir. H. T. Parekh, General Manager. Hr. IMehta has since returned to Bombay and obtained his Board's approval of the terms of the proposed loan.  6. This qp10 million loan, if made, would be the Bank's twenty- second loan to India and would increase the total amount of Bank loans to India to $542 irn llion net of cancellations. The status of the previous loans is as follows: As of hay 31, 1959 _( million) Total !/(net of cancellations) 532.1 Less amount sold 9G5 782-. .amount repaid 32.0 Less repayments to third parties 18.6 13.h Net armount held by the Bank 46902 The proposed loan would increase the net armount held by the Bank to W479.2 million, Pi~L.T II - DESV AILTIJN J