New Delhi: Nearly four years after it was set up, India Infrastructure Finance Co. Ltd (IIFCL) is gaining in significance as the government looks to make more money available to infrastructure projects while reducing the burden on banks.
Chairman S.S. Kohli has been at the helm of IIFCL since its inception. Now, nearing the end of his one-year extension in April, he spoke about the challenges facing infrastructure financing in India and how IIFCL is trying to tackle these. Edited excerpts:
Aiming high: IIFCL chairman S.S. Kohli says the company hopes overseas disbursements will touch $125 million by the end of this fiscal and around $500 million by the next. Ramesh Pathania / Mint
Has IIFCL’s scope widened since its creation?
The company was (incorporated in 2006) to work under a scheme called Sifti (Scheme for Financing Viable Infrastructure Projects)—which mandated that it can fund loans for a longer duration to the power, highways, ports, airports and urban infrastructure (sectors). I think that objective has...been achieved. Because in a period of three-and-a-half years, we received about 250 proposals, out of which 128 have been sanctioned. The remaining were not considered.
We need to have innovative ways of funding infrastructure. So far, 80% of funding is done by the public sector banks. The other insurance companies—of course, they can fund up to 15% of their fund—but there are some conditions regarding ratings or so on, so that target has not been achieved. Bond market, per se, has not been developed until now. So we thought that although this company has commenced with a very lean staff, we have now advertised and in a period of five-six months, the staff strength may increase to about 50.
We thought we should do the study of takeout financing (offering a long-term loan after a project achieves pre-set milestones through a short-term loan). Of course, takeout financing was initiated in 2000. But the scheme did not take off because of the high commitment earmarked. But this time, the scheme has been prepared after discussing with all the stakeholders, with banks, with IBA (Indian Banks’ Association), with Irda (Insurance Regulatory and Development Authority), with insurance companies, with the Reserve Bank of India. And it has been approved by the empowered committee (that governs IIFCL) and we are waiting for (final) approval.
Do you want any policy changes for infrastructure financing?
Infrastructure financing, in my opinion, is at a nascent stage. So, problems will arise from time to time. So, whenever we feel that this is very difficult, there is (a) need to revisit that scheme, we are going to our board after getting the study done for making the necessary modifications.
What are the key issues that need be looked into?
We should sanction longer tenure of loans. As per (a) World Bank report, loans are (globally) sanctioned (for) about, say, 70-80% of the concession period (duration for which a company operates a project). But in India, because of the asset-liability mismatch (inability of companies to make due payments on time), the banks are only sanctioning loans of up to 50% or 60% of the concession period. This may result in the company or developer asking for viability gap funding (grants issued by the government to make projects viable), which will put pressure on the government exchequer. Or, they may have higher user charges, which will put pressure on the public.
So, going ahead, I think there is a need to sanction loans to a higher percentage of the concession period, to take care of these aspects. This issue needs to be addressed. Except in private sector, we are sanctioning loans two years more than the longest tenure. Now...IIFCL is receiving payment at the back-end, instead of front-end, so that the average maturity of the loan may increase. But going ahead, I think this issue...has to be addressed.
Should IIFCL go public?
We can’t totally ignore this aspect, because infrastructure, if you go by plan, needs (a) huge amount of debt and to what extent the government can provide capital? So, maybe in the next frame of three-five years, or maybe six years, depending on the government decision, IIFCL may think of going public for raising requisite capital.
But then, wouldn’t creating value for shareholders become your primary concern?
I agree with you, that you have to equate to meeting the requirements of the infrastructure sector rather than becoming a financial intermediary.
So, I think the whole view could be taken, because I think we are still at a very nascent stage.
Do you think you should do your own loan appraisals now, rather than depend on the lead lender’s appraisal?
Initially, because of a lean staff, it was stipulated that we go by the appraisal of the lead bank. But we, of our own, (have) put a risk management system in place. Although the project is appraised, maybe, as viable by the lead bank, but it has to pass the rigour exercise of risk management system. If it confirms to the rating which has been approved, then only we will go ahead with the funding of those proposals. But I think going ahead, IIFCL would have to create capacity to appraise proposals.
Will you meet this year’s disbursement target of Rs6,000 crore?
This year, that will be lowered because some companies have come for public issue. Or (to) some companies, instead of raising the loan, we have given letters of credit... That may come in the subsequent part of the year.
So what will be the disbursements this year?
Disbursements, I think, we should be around Rs4,000 crore.
Will the total disbursement target of Rs9,000 crore (since inception), as announced by the finance minister, be met by 31 March?
Rs9,000 (crore) will be met, because we are already Rs7,700 (crore).
Are you thinking of relaxing your lending cap, which is 20% of the cost of the project or to the private sector?
Twenty per cent of the cost of project means roughly about 25-30% of debt, which by all means is not a small amount. (On) the question of 20% to the private sector...I think the view has still to be taken whether to increase this limit...
What about overseas disbursements?
We have raised $250 million (Rs1,140 crore). They (overseas subsidiaries) have sanctioned nine proposals amounting to $1.5 billion with a project cost of about $13 billion. The disbursement so far is about $60 million. We hope that it may be around $125 million by the end of this financial year and maybe about $500 million by the next financial year.
Are you working on any new schemes?
Another area where we are working is credit enhancement.
I have mentioned earlier that bond market has not been developed, whereas, all over the world, the bond market is a vital source for funding of infrastructure projects. The problem is that all infrastructure projects have to be undertaken by special purpose vehicles, which don’t have any past financial data, so they can’t raise funds through bond market. So, one assumption could be, they could use the rating of IIFCL for raising these bonds. We have already appointed a consultant (and) the report has been received. That is being examined.