“The scheme will be launched to help commercial banks provide long-term funding to infrastructure projects in India,” the source said.
IIFCL aims to address the asset-liability mismatch commercial banks have in their books from funding long-term projects with short-term money. This is where takeout financing comes in, under which a new party takes over existing lenders’ obligations in a project by providing permanent financing.
Under this scheme, IIFCL would buy out 50 percent of commercial bank loans, to increase capacity in the bank sector for infrastructure funding. Reports suggest IIFCL plans to buy INR250 billion (€4 billion; $5.6 billion) of commercial bank loans over the next three years, with INR30 billion to be bought in the first year itself. The remaining INR220 billion will be bought by March 2013, reports say.
According to a statement on the IIFCL website, companies can access take-out financing only after the project has been commissioned. It lists eligible borrowers as those developing sea ports, airports, roads (including bridges), and power plants. Also, In order to take advantage of this scheme, IIFCL, the commercial bank and the developer must enter a tri-partite agreement.
In order to relax norms for infrastructure companies, the Indian government recently also permitted takeout financing via external commercial borrowings, allowing infrastructure companies to access takeout financing through overseas borrowings once a project has been commissioned.
Infrastructure projects largely depend on financing from commercial banks that is available for a short-term period only. This results in asset liability mismatches and delays the project. In order to create long-term funding options and attract private capital to the infrastructure sector, the government is in the process of relaxing regulations and tax norms.