IIFCL to be the Primary Funding Source for Infra Projects
It can be expected that in the immediate future, infrastructure developers would be informed by India Infrastructure Finance Co. Ltd (IIFCL), which is a government-owned financier of public works, when bids are invited for a project, and whether loans extended to them by banks can be taken over or assumed. As a result of this move, interests costs are likely to be lowered, with reduction in the amount required through government grants, so as to achieve adequate financial returns.
IIFCL to provide low cost funds for long-term:
With the exit of banks as a source of funding projects, IIFCL will be considered the main lender of funds for infrastructure projects, through which the government will facilitate the provision of low cost funds for the long-term. Meanwhile, approval for changes in the scheme for funding viable infrastructure projects was given by an empowered committee, that will enable financing of infra projects by the finance ministry, through the IIFCL. The finance ministry is yet to give its verdict to this proposal.
Planning Commission proposes Takeout finance at Pre-bid stage:
It was the Planning Commission that had initially proposed the idea to offer takeout finance at the pre-bid stage of infra projects. As per this scheme which was introduced in 2010, part of the loan extended by banks to infra projects are taken off from their books by IIFCL. This will enable banks to release funds so as to finance other projects. Thereby, asset-liability mismatches can be avoided since infrastructure loans have a longer tenure than bank deposits.
Takeout Finance to benefit developers and banks:
As of now, infrastructure developers have not been informed if their projects will get access to takeout finance at the pre-bidding stage. However, if the developer is informed that he is eligible for takeout finance at a later date, based on certain eligibility criteria, he can take necessary steps to finance accordingly, at the bidding stage itself. The takeout financing scheme benefits both the developers as well as the banks. Developers benefit due to lower interest rate costs, while banks benefit by way of the scheme addressing its asset-liability mismatches. As a result, project cost estimates will be lowered and VGF (Viability-gap funding) requirement will be reduced.
By providing VGF, the government ensures that a project is financially viable for the developer. This proposal would be beneficial for the developer as initial funds provided for a project through a bank or a consortium of lenders is only for a limited period. Besides, lenders can also rest assured due to the fact that they will know beforehand that the outstanding due required for project funding will be provided by IIFCL.
Revision in Takeout finance scheme:
The takeout financing scheme was revised by the government in December 2011, bringing in more transparency into the pricing mechanism, which was proposed to be fixed based on the credit rating of the infrastructure project. Besides, it also relaxed the criterion for IIFCL to assume loans, based on which the IIFCL was allowed to provide loans for a tenure not exceeding that provided by other banks. As a result, developers were provided funds for a longer period of time and at lower costs.
Govt constitutes Special Cell of PMO and CCI:
An investment of $1 trillion was projected by the Plan panel during the 12th Five-Year Plan, ending March, 2017. A special cell was also constituted in the Prime Minister’s Office by the government to address issues related to stalled infrastructure projects. Besides, the government has also set up the Cabinet Committee on Investments (CCI) to ensure that project approval is done in a speedier manner.
