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India looking inside out for more private funding

While at home India’s Central Bank dictates corporate debt spread across the institutional investor spectrum, Modi’s government looks abroad for foreign Exim bank-private EPC funding.

The Reserve Bank of India, the country’s central bank, announced yesterday that banks would be allowed to buy infrastructure bonds issued by other lenders up to 2 percent of the purchasing bank's Tier 1 capital all the while reserving at least 80 percent of corporates’ debt to a diverse range of other institutional investors.

Concurrently, the Modi Administration was reported by local press to be seeking support from Japanese and Malaysian export-import banks to fund India’s road transportation through preferential lending conditions to domestic private developers, India currently imposing deterring restrictions on the loans.

Prime Minister Narendra Modi has pledged to improve India's creaking infrastructure and is aiming to provide housing for all by 2022, a plan evaluated to require approximately $2 trillion of investment.

Looking to the private sector at home, acknowledging the need to allow banks who are market makers to cross-hold each other's bonds, the central bank in April eased its ban on such holdings.

However, the central bank specified that no more than 20 percent of infrastructure bond issues could be earmarked for banks, while the rest must be spread across other diverse investor groups.

The RBI has also placed a cap on the investing bank’s ability to hold long-term infrastructure bonds at 10 percent of its corporate bond portfolio.

The Reserve Bank of India (RBI) has been issuing policy to develop the market for infrastructure bonds, to encourage long-term investors such as pension, insurance and provident funds to buy bonds issued by banks to fund affordable housing. The Parliament has also allowed insurance companies’ to open up their capital up to 49 percent to foreign direct investment from 25 percent previously, in order to enable more equity to flow to infrastructure.    

With regards to public sector funding through state to state bilateral agreements, Malaysian officials are expected to visit India soon to evaluate highway projects for investment under the hybrid-annuity model. Under this scheme, 60 percent of the project cost has to be borne by the private investor.

The remaining 40 percent will come from the National Highways Authority of India in five equal installments.

The government will also bear the revenue risk in projects where there is a low anticipation of traffic flow, the bank said. Highway projects covering 8,000 kilometer stretch and worth Rs 1 trillion (€14.3 billion; $15.7 billion) were awarded by the government in financial year 2015. The government will be selling road projects covering 5,000 km worth about Rs 1 trillion after they are completed through the state to state/EPC route.