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Mukherjee calls for developing new instruments to enable increased financing

New Delhi, Thu, 05 Jan 2012 ANI

New Delhi, Jan 5 (ANI): Finance Minister Pranab Mukherjee on Thursday emphasized on the need for developing new instruments, like credit enhancement for providing increased financing for infrastructure projects in the country.


Mukherjee, who launched the Pilot transaction under Credit Enhancement Scheme, a major initiative of Indian Infrastructure Finance Company Limited (IIFCL) here said that this alternative mechanism of fund availability to infrastructure project developers would go a long way in development of infrastructure bond market through creation of new class of investors like Insurance Companies and Pension Funds.


"This would also free-up Banks' capital for financing new projects," he added.


Mukherjee also lauded the efforts and initiatives of IIFCL, LIC of India, HUDCO and seven major public sector banks on coming together to create a mechanism to facilitate faster and smoother availability of funds to infrastructure sector in the country.


On the occasion, the approval letter from IIFCL to the first pilot transaction under this scheme was handed over to GMR Jadcherla Expressway, an SPV of GMR group.


To further support the financing of infrastructure projects and smoothen the availability of credit to them, an MoU was also signed among IIFCL, LIC of India and seven major Public Sector Banks namely State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, Union Bank of India, and IDBI to create a financing mechanism for direct financing of infrastructure projects.


The financing mechanism created through MoU would enable developers to fast track the achievement of financial closure and hence commence the construction of projects more quickly. This mechanism would provide a single window to the developers to approach multiple lending institutions, which would save time and money on appraisal and sanction of projects.


An MoU was also signed between IIFCL and HUDCO on the occasion to support initiatives for infrastructure financing in India through joint pooling of respective complimentary resources and expertise of both the organizations.


Under Credit enhancement, IIFCL in association with Asian Development Bank (ADB) would provide credit rating enhancement to the bond issue programme of an infrastructure company to make it an eligible investment grade instrument mainly for long-term investors such as insurance companies and pension funds through extension of Partial Credit Guarantee.


This would be a win-win product for all players in the financial market - the lenders, the investors, and the developers. It would help address twin constraints in bank lending viz. Asset-liability mismatch and prudential group and sectoral exposure norms and would simultaneously free up capital for creation of new assets.


The developer would also derive benefit from the scheme by way of reduction in interest cost, stability and certainty of debt obligations due to fixed rate of interest in place of floating interest rate of banks, and freeing up of exposure limits of banks on them.


The scheme would enable channelizing of long-term funds from fairly untapped resources such as insurance companies and pension funds to the infrastructure sector and would also help in development of corporate bond market in the country. (ANI)


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