India Infrastructure Finance Company (IIFCL) has tied up with Life Insurance Corporation of India (LIC) and IDBI Bank to buy out infrastructure sector loan portfolios of commercial banks. The scheme, also known as takeout financing, helps banks free up their capital deployed in long tenure infrastructure projects and enable them to fund newer ventures. With infrastructure sector investments projected at $1 trillion in the next Five-Year Plan (2012-17), the scheme aims to address the key issues of finding the resources.
Under this takeout financing initiative of IIFCL, the three partner companies would together take out up to 50% of the infrastructure loan portfolio of a bank. IIFCL and LIC would buy out 20% each and IDBI 10%. ?This would raise the capability to free funds in the banking sector through. Currently, we can take out only up to 20% on our own,? IIFCL chairman and managing director SK Goel told FE.
At the end of March 2011, the banking sector had an exposure of R5,26,612 crore to the infrastructure sector, according to the Reserve Bank of India data. Most banks are close to reaching sectoral ceilings in sectors like power, roads and ports, and are unable to lend more. Developers, which are bidding aggressively to bag projects, are not getting cheap funds.
The takeout financing scheme was launched by IIFCL in October 2010 on the finance ministry?s initiative. Under the scheme, IIFCL can take up to 75% of infrastructure loans given by banks on its books. But the scheme could not take off as bankers and developers questioned the institutional capability of IIFCL. So far this year, IIFCL could disburse around R100 crore of the total sanctioned sum of R3,100 crore.
IIFCL has now revised the scheme, allowing infrastructure development companies to directly apply for takeout financing immediately after the commercial operation of the project starts. As of now, developers had to seek takeout financing from banks only after the completion of one year after the commercial operation. IIFCL now expects take-out financing to reach R30,000 crore in a year. ?Of the total, we would contribute R12,000 crore,? said Goel.
?We would also give high-rated developers the benefit of lower interest rate than the banking sector. For example, a triple ?A? rated firm could avail of take-out financing at a little over our base rate of 9.65%,? said Goel. The revised scheme is likely to be formally announced by finance minister Pranab Mukherjee in Mumbai on Saturday.
Goel said IIFCL expects approval of the credit enhancement scheme in next two months. In this scheme, it has proposed giving a guarantee of up to 50% of the bond issue of infrastructure firms.
The country is likely to fall 12% short of the targeted infrastructure investment of $500 billion in the current Five-Year Plan, which ends in March 2012. The government wants to double this investment in the next Plan. The Planning Commission foresees scarcity of funds of up to $100 billion during that period.
