The proposal, which currently requires some groundwork to be done before it is actually implemented, has already received the clearance of the IDBI executive committee.

A major time-saving factor is that this does not require any amendment to the IDBI Act since the Government can issue a notification to the effect vide Sec 9 (M) of the act empowering IDBI to finance overseas projects--which could eventually be either through the route of loans, equity participation in Indian companies setting up offshore units or joint ventures, relationship-based collaboration or even fee-based advisory services--depending on aparticular country's needs and IDBI's own perception of the risk-return aspects.

According to sources, IDBI is already in dialogue with the Government for it to concede this enabling provision on the strength of Sec 9 (M). Negotiations about specific projects are expected to begin once this clearance comes through.

At present, the prime offshore activity of IDBI is merchant banking on which there are no restrictions except that the approval of the Reserve Bank of India has to be obtained. IDBI has an agreement with Korean Development Bank for its merchant banking activities.

With the Indian market having reached near-saturation, coupled with the constraints imposed by a poor legal system and foreclosure laws, where civil suits often drag on for years, it could be just a matter of time before cross border funding becomes a relatively attractive proposition.

This is in spite of the fact that players in the international markets have to be content with smaller spreads of around 1.5-2 per cent, althoughin absolute terms they turn out to be large since they are volume-driven. However, small spreads are not much of a constraint for Indian players today, considering the fact that disintermediation and competition have driven down spreads in the Indian markets. IDBI's own spreads came down in 1998-99 to 2.6 per cent from 3.9 per cent the year before.

Analysts point out that IDBI, which could pump in Rs 1,000 to Rs 2,000 crore over a period of time, could look at doubling its present net worth within four years once it launches its overseas ventures, given the volumes in the international markets. The other advantage of an overseas presence is that Indian players get to widen their horizons in tandem as the WTO agreement makes the domestic markets more accessible to foreign players.

Although the proposal is in its nascent stages, it is likely that IDBI would like to make a foray into industries such as power, oil, petro projects, and perhaps textiles and cement, to begin with. The IDBI top brass is said tobe taking a hard look primarily at three geographical segments initially--the East Asian countries, the Gulf region and African countries, although no final decision has been taken regarding this.

Russia had also figured initially on the list when the idea first surfaced some years ago, but investment there is currently ruled out because Russia is fraught with country risk. However, some amount of currency risk is inevitable since IDBI will primarily be giving dollar-denominated loans and a major part of its homework will go towards taking a view on the movement of the domestic currency of the country (to which it is taking an exposure) vis-a-vis the dollar as part of its risk appraisal. Another factor that will determine the choice of countries will naturally be the convertibility laws governing repatriation.

Preliminary research reveals that there is a good pent-up demand for advisory services in the Gulf and African countries, particularly for gas-based power projects in the Gulf on the lines ofthose which have been set up in Andhra Pradesh with IDBI evaluation and funding.