To give a boost to infrastructure funding, the government has approved significant easing of the guidelines for state-owned financial institution India Infrastructure Finance (IIFCL), allowing it, among other things, to be the ‘lead bank’ in a financial consortium and granting it greater autonomy with an active treasury. The idea is to enable enhanced flows of cheaper credit to core-sector projects.

Financial services secretary Hasmukh Adhia told FE that the government has approved amendments to the scheme governing IIFCL called Sifti (or the Scheme for Financing Viable Infrastructure Projects).

“The change in the norms will take IIFCL to its full potential. If quality projects are made available, IIFCL will now be able to lend substantially more,” Adhia said. The revised norms, approved by the finance minister lately, will be made public soon.

Currently, IIFCL is not allowed to be the ‘lead bank’ in a consortium financing an infrastructure project given its role as a secondary lender. This prevented it from carrying out independent due diligence and project appraisals. With the changed rules permitting the financial institution to be the lead bank, it can be the primary lender if need be.

Further, the new norms would also allow IIFCL to invest in AAA-rated corporate bonds and develop an active treasury to manage its finances.

In its sourcing of finance, this would bring flexibility. IIFCL, for instance, can prepay its high-cost debt with lower-cost funds freshly garnered and transmit the benefit to infra projects. So far, IIFCL was allowed to raise resources only for lending but not for repayment of high cost funds.

Also, as per the amended guidelines, IIFCL can lend with a minimum average maturity of five years from the earlier 10 years. This will help them join the 5/25 scheme allowed by the Reserve Bank of India, where “lenders can fix a longer amortisation period for loans to projects in infra and core industries sectors, say 25 years, based on the economic life or concession period of the project, with periodic refinancing, say every five years”.

Besides, IIFCL can from now on lend more to standalone private sector projects (including in the renewable energy segment) — up from 20% so far to 40% of its total credit — and less to public-private partnership projects (down from 80% to 60% of its total credit). This change will give it more flexibility in choosing projects, especially given the problems in the PPP model.

The Sifti scheme amendments have been approved by an empowered committee of secretaries and finance minister Arun Jaitley. “The changed norms will give IIFCL more flexibility in lending and enlarge our role in the infra finance segment. It will also help us in setting up a due diligence and project appraisal wing with experts and other lenders will also be able to depend on our due diligence in the future,” IIFCL chairman and managing director SB Nayar said.

IIFCL is registered with the RBI as an NBFC-infrastructure finance company. In 2013-14, it made incremental disbursements of Rs 5,484 crore, taking its cumulative disbursements to Rs 32,064 crore. In that fiscal, it posted a net profit of Rs 521 crore, down from Rs 1,047 crore in the previous fiscal.

The recent economic survey has pointed out that stalled projects at December-end 2014 stood at Rs 8.8 lakh crore (7% of GDP).

Infrastructure impetus

*  Govt revamps SIFTI norms governing IIFCL
*  IIFCL can now be ‘lead bank’ in infra project financing consortium & do independent due diligence
*  It can operate an active treasury to in turn enable it to provide cheaper credit
*  Govt also permits FIs to raise low cost funds to repay funds that it borrowed at high costs
*  IIFCL allowed to lend with a minimum average maturity of 5 years and join the ‘5/25’ scheme
*  It can now lend more to standalone private sector projects and less to PPP projects