Takeout financing scheme to benefit long-gestation infra projects

Font Size

Print

Feedback

Email

Discuss

Related Articles

Dubai debt crisis rattles recoveryForex reserves fall to $285.34 billionExport decline arrested; outlook positive

New Delhi: The 'takeout financing scheme' announced in budget 2009-10 is expected to encourage banks and other commercial lending institutions to advance more loans towards infrastructure projects having a long gestation period.

According to industry experts, take out financing scheme which is already a big success model in Europe , US among others will encourage those financial institutions having the short term resources to lend but not having the long term appetite to hold it come forward and finance long gestation infrastructure projects.

Under this scheme, banks will be allowed to sell their loan portfolio to a third party after a certain period of time thereby freeing up capital and absolving them from their long term obligation.

For this the India Infrastructure Finance Company Ltd (IIFCL), an SPV formed to fund infrastructure projects will evolve a ‘takeout financing’ scheme in consultation with banks to facilitate incremental lending to infrastructure sector.

Sanjay Sethi, head - Infrastructure - Kotak Investment Banking, said, "This would benefit both the project developer and the lender. When there is a tacit guarantee from the government through India Infrastructure Finance Company Ltd, commercial lenders would feel more comfortable in advancing loan to a project”.

The budget 2009-10 proposed these move to address the issue of asset liability mismatch of banks as they receive deposits for a shorter period say five years where as loan period for an infrastructure projects typically varies from 15-20 years. This limits the banks ability to lend more to long gestation infrastructure projects.

While presenting the budget, Finance Minister said, “‘Takeout financing’, an accepted international practice of releasing long term funds for financing infrastructure projects, can be used effectively to address the asset liability mismatch of commercial banks arising out of financing infrastructure projects. It can also be used effectively to free up capital for financing new projects.”

Due to lack of availability of funds and high cost of borrowing nearly 30 highway projects under the National Highway Development Programme (NHDP) Phase III, IV and V costing over Rs 35,000 crore are yet to take of.

With government giving major thrust to the infrastructure sector to kick start growth in the economy had necessitated the need for innovative means of financing projects.