Banks will have significant elbow room to shift about liabilities linked to huge infrastructure loans with a life as long as 30 years under the “take-out financing” scheme which was unveiled in Finance Minister Pranab Mukherjee’s budget this year.
In effect, the scheme being steered by the India Infrastructure Finance Corporation Ltd. IIFCL will enable easier credit for long-gestation projects by giving banks a much-needed flexibility that could lower the risk perceptions with regard to projects that build roads, ports, power plants and other infrastructure facilities.
Under the scheme banks might be allowed to transfer their liabilities of infrastructure loans to another bank after seven years.
Effectively, this would mean after seven years the loan amount can be “taken out” of the bank’s books and transferred to another bank. The sequence would repeat after seven years and subsequently thereafter, thus not upsetting the schedule of the original borrower. The scheme, prevalent in countries such as the US, would be based on a tripartite agreement between the borrower and both the banks, one that lends and the other that takes out the liability.
In case, it cannot be transferred to another bank, the liability would be borne by IIFCL—a government-run company dedicated towards raising money for infrastructure projects. “The finer details have to be put in place. What we have at the moment is just a broad outline,” IIFCL chairman SS Kohli told Hindustan Times.
India needs about $500 billion (Rs 2.5 lakh crore) over the next five years to fund its infrastructure requirements. Project developers were keenly awaiting more details on the scheme.
“Take out financing is being deliberated since the beginning of the 11th Plan period. It has been delayed by two years but a step in the right direction to speed up the infrastructure sector,” said Vinayak Chatterjee, chairman, Feedback Ventures.
VD Mhaiskar, chairman of IRB Infrastructure Developers echoed similar views and said it would ease out the problem of long-term financing for infrastructure projects.