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New vehicle for long-term infra finance on the anvil

National Housing Bank (NHB), Nabard and India Infrastructure Finance Company will be roped in as investors

National Housing Bank, Nabard, IIFC, National Infrastructure Credit Enhancement, Infrastructure investments

India is proposing to create a new entity for financing infrastructure that will seek to bolster lower-rated bonds issued by companies in the sector. The National Housing Bank (NHB), National Bank for Agriculture and Rural Development (Nabard) and India Infrastructure Finance Company will be roped in as investors for the proposed entity National Infrastructure Credit Enhancement Ltd or NICE.

There have bene some discussions regarding these two institutions picking up 5-10% stake in the proposed non-banking financial company. IIFCL will hold 22.5% stake in the entity. 

As per the latest Economic Survey, India needs $4.5 trillion to be spent on infrastructure developments over the next 25 years of which it will be able to garner $3.9 trillion. While bank credit towards infrastructure sector has increased in the last one year, it had plunged to Rs 8.90 lakh crore in March 2018 from Rs 9.64 lakh crore as of March 2016. 

NICE will set up a dedicated fund to attract infrastructure investments by insurance and pension funds to provide credit enhancement to infrastructure companies.

It will provide guarantee to lower-rated bonds issued by infrastructure companies and bolster their ratings. More than 85% of corporate bond issuance in India is by borrowers with ratings of ‘A’ and above, according to recent RBI data.

Credit enhancement helps issuing companies improve their bond ratings, as bond payment is guaranteed to a certain limit. The issuer also gets access to markets at cheaper rates than borrowing from banks. 

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June 2020
10 Jun 2020