India?s big buzz for infra sector, the take-out finance scheme could finally be up and running by November. India Infrastructure Finance Company Ltd (IIFCL) is expected to finalise the specific features of the scheme and also unveil the re-worked refinance window for infra projects.
The company has appointed rating agency Crisil as consultant to customise the take-out financing scheme, announced in Budget 2009-10. Crisil will also be expected to look into the viability of the scheme and issues like pricing and stamp duty.
It is expected to finalise its recommendations by the month- end, based on which IIFCL will hold discussions with Reserve Bank of India, Indian Banks? Association and other stakeholders. ?We hope to get the scheme approved by the Board of IIFCL by the end of next month,? a finance ministry official said.
In take-out finance schemes a project that is expected to take a long time to complete, say 15 years, can be given a loan by a bank for only five years with the commitment that it can sell the loan to another financial company (the take-out) for the rest of the term. This helps banks, since they prefer short-term loans of up to five or seven years yet meets the need of the project developer for assured long term finance. The Prime Minister?s committee on infrastructure has estimated the projected investment requirement for infrastructure at Rs 5,00,000 crore .($125 billion)
With the refinance window under IIFCL meeting with limited success, finance minister Pranab Mukherjee had announced the takeout financing scheme in Budget 2009-10 to stimulate private investment in infrastructure.
North Block is, therefore, examining ways to iron out creases in the IIFCL?s refinance window for infra projects. This includes permitting existing projects to also tap into the scheme. A final decision on it will be taken by next month, the official said.
While IIFCL was permitted to raise Rs 10,000 crore to refinance infra projects in 2008-09, but there haven?t been enough takers for the money. This is because the sum is meant to finance only projects bid on or after January 31, 2009. With few projects having been awarded after the cut-off date, the scheme hasn?t met with much success. Last month, the infra financing SPV asked the finance ministry to enhance the scope of the scheme. IIFCL has been allowed to raise another Rs 20,000 crore in 2009-10.
The RBI in its annual report has pointed out that once the government goes through the exit route as normal conditions return in the economy because of fiscal consolidation, this will clip back public investment. That space has to be filled in by private investment but that is not very forthcoming as financial institutions are most reluctant to give credit for the sector. RBI?s latest data shows infrastructure has got 25.6 % of the total bank credit to industry in 2008-09. But the growth rate has come down to 31% from 41% a year ago.
For the government, therefore, making a success of take-out financing is very critical to ensure both revival of the economy and meeting the infrastructure deficit in the economy. RBI has pointed out that only some progress is discernible in attracting private investment in telecom, power, airports and ports etc.