Bond finance enables infrastructure companies to avail of long-tenure debt at fixed interest rates from sources other than banks.
At present, since infra companies are typically regarded as "below investment grade" until they become profitable, insurance and pension funds shy away from investing in their project for the first few years.
"The finance ministry may allow IIFCL in this budget to provide guarantees for specified infrastructure bonds, to enable such bonds to be rated as 'investment grade', thereby being able to attract insurance and pension funds as well as household savings," a senior government official told HT.
"IIFCL would use its exposure for guaranteeing bonds of infrastructure companies in order to raise their credit rating to AA or AAA after which such bonds will be able to attract large investible pools of funding, which currently stay away due to high risk perception," he added.
"The finance ministry is already looking at several ways to develop the bond market and channelise household savings into it… this is one formula, which is under consideration," the official said.
With its experience in infrastructure financing, IIFCL is well suited to provide guarantees for bonds to be issued by private infrastructure companies, he added.