Finance Minister Pranab Mukherjee with the bank officials in New Delhi.
India Infrastructure Finance Company Ltd (IIFCL) has signed the first ever takeout finance scheme with Union Bank of India (UBI) involving taking out of over Rs1500 crore in seven different projects from power and road sector.
As per the scheme, IIFCL will take out the infrastructure loan from the books of the original lender up to 100% of the outstanding amount subject to the condition that the total takeout amount does not exceed 50% of the total residual loan of the infrastructure project. The takeout would occur after one year of achievement of Commercial Operation Date (CoD). Post-takeout, depending upon the risk profile of the project, IIFCL may consider reduction in rate of interest.
With the implementation of takeout finance scheme through IIFCL, the long awaited need for overcoming the difficulties faced by commercial banks in asset liability management due to long tenure of infrastructure loans will be mitigated to a great extent. This will also facilitate better incremental lending to infrastructural projects by commercial banks, which is essential for the economic growth of the country.
Indian Finance Minister Pranab Mukherjee who was present during the signing of an agreement, said that availability of long term resources to meet infrastructure investment requirement is a key challenge. He added that as per preliminary estimates, there may be a substantial gap of 30% in financing the 12th Plan (2012-17) of about US$300 billion in debt. “Government recognized that the debt of longer maturity was usually not available because of the various constraints such as absence of benchmark rates for raising long term debt from the market; asset-liability mismatch of the tenor of debt in case of most financial institutions; and high cost of long term debt,” he added.
The Finance Minister said that the takeout finance agreement between IIFCL and Union Bank of India is a step towards accelerating the flow of funds to the infrastructure sector. He added that the investment needs of the infrastructure sector is quite huge and considering the fact that banks need to step their incremental lending, the availability of takeout finance from IIFCL would help address the constraints relating to asset liability mismatch faced by banks. He expressed confidence that the commercial banks would take full advantage of the takeout finance offered by IIFCL.
During his budget speech of 2009-10, the Finance Minister had announced that IIFCL after consultation with various stakeholders would evolve a takeout finance scheme aimed at addressing the asset-liability mismatch faced by banks while lending to infrastructure sector. IIFCL, after detailed consultation with stakeholders including commercial banks, appraising institutions, regulators, project developers etc finalised the takeout financing scheme in April 2010.
On the occasion, the CMDs of Punjab National Bank, Indian Bank, Allahabad Bank and UCO Bank also signed MoU for takeout finance with IIFCL indicating a strong interest amongst banks for the scheme.
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