The UPA government’s short-term growth strategy relies heavily on infrastructure development. In an extension of this strategy, the government today announced a ‘takeout financing’ scheme to encourage flow of credit to these development projects. Presenting the Union Budget for 2009-10, finance minister Pranab Mukherjee said India Infrastructure Finance Company Limited (IIFCL), the public sector financier for the infrastructure sector, will “evolve” a “takeout financing” scheme in consultation with commercial banks so as to ease banks’ burden arising from asset-liability mismatch due to long-term funding to these projects.

“‘Takeout financing’ is an accepted international practice of releasing long-term funds for financing infrastructure projects. It can be used to effectively address the asset-liability mismatch of commercial banks arising out of financing infrastructure projects and also to free up capital for financing new projects,” the finance minister said. Under ‘takeout finance’, a bank or financial institution that is financing an infrastructure project can opt out of a long-term loan by selling the loan to either a third bank or a primary bank — a “lender of the last resort” — on a pre-determined basis.

The policy contours of the arrangement will be worked out by the IIFCL in consultation with banks over the next two to three months, the public sector financer’s chairman and managing director, SS Kohli, told The Indian Express. “The announcement has just been made. The draft has been drawn out and will be presented at our board meeting on July 14. Only then will we able to take it forward,” he said.

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