New Delhi: With availability of funds increasingly becoming a concern for infrastructure developers around the country, India Infrastructure Finance Co. Ltd (IIFCL), a government-owned company that provides project finance, is set to become a key player, offering a Rs40,000 crore refinance window to banks, apart from lending directly to projects. Its chairman and managing director S. S. Kohli spoke to Mint a day after IIFCL received commitments of Rs7,000 crore on a bond issue of Rs2,500 crore on 22 January. Edited excerpts:
When will this refinance line be open to the banks?
New commitments: A file picture of IIFCL’s S.S. Kohli. Amit Bhargava / Bloomberg
Now the funds have been mobilized. I think after getting the approvals, we will open this line.
When will you raise the second tranche of the Rs10,000 crore?
As per the government guidelines, we have to mobilize it before 31 March.
What was your lending target for this year?
Actually, our target was Rs4,500 crore. Last year we disbursed Rs1,500 crore. This year, we will be disbursing some Rs3,000 crore. That’s a 90-100% increase compared with last year.
Do you think banks will take to this refinance window?
In the past, banks were not using this refinance. But the only advantage is that this is long term. And they have got a problem with asset liability mismatches, borrowing short and lending long. Let us see. In the past, banks have never availed (of it). But this is a different kind of refinance, taking care of long-term funding. So, let us see.
The sector needs long-tenor funds. Why did you issue only five-year paper?
Actually, tax-free bonds have come after a long time. Because there is a notional loss on revenue. And nobody was sure of the response also. Let us mobilize Rs10,000 (crore) and let us see the deployment.
You run a very small organization, with 20-odd staff? How do you appraise all the projects in which you invest in?
We used to go by the appraisal of the lead bank (which ties up funds for projects). Now, we have put in a risk management system. All the new proposals will be routed through the risk management system. The proposal has to be passed through various modules. Depending on what is there, who are the promoters, how the sector behaving ... there are certain ratings to be given. If it comes to the rating where we can invest, then only we invest. Otherwise we cannot.
There’s all this talk about a lack of liquidity and banks not disbursing money. Is there still a problem?
As far as infrastructure is concerned, I think most of the projects are going as per schedule. Leaving aside one or two cases, I think disbursement is being made as per the schedule. We have not come across any problems. In fact, financial closure has been done in 75 cases out of 88. Disbursements have started in 58 cases. Except for one or two cases, there is no problem.
What are the major issues that you see in the infrastructure sector?
Land acquisition is a problem as far as highways are concerned. And some state governments have adopted a different model of giving annual annuity (payments) besides compensation or employment to one member of the family (affected by the project). But I think this issue needs attention. Land acquisition amendment bill is in Parliament. R&R (Rehabilitation and Resettlement) policy is in Parliament. I think it may take care of these issues. Besides land acquisition, the state support is necessary for getting clearances. Environmental and forest department clearances are also very essential. I think there is a need that such clearance should be obtained much faster. Funding of infrastructure projects is also an issue. In our country, the corporate debt market has not developed. And ECBs (external commercial borrowings) are at present dried up. So there is a need to develop this corporate debt market.
There are newer ways of funding of infrastructure that is necessary. Actually, the problem is that all over the world, insurance and pension funds are also funding infrastructure demand. Here, there are certain guidelines regarding rating that restrict companies from making investments.
Recent highway bids have seen a poor response….
I think because of the slowdown, the bidders have got two problems. Whether the projected traffic would be there as per the anticipated projections or not. And the second is the cost of funds. The cost of funds, of course, could be taken care of using the refinancing line, which would be available through IIFCL. But other aspects are important and I think if the cost of projects is taken care of, it will generate interest among the bidders.