New Delhi: State-owned India Infrastructure Finance Co. Ltd (IIFCL) has less than a month to disburse Rs3,000 crore in project refinancing, going by the letter of this year’s Budget presented in Parliament on 26 February.
Finance minister Pranab Mukherjee had told lawmakers that this is the amount the government will provide through IIFCL in the year ending 31 March to banks funding infrastructure projects. The finance company is “expected to more than double that amount in 2010-11”, he had said.
Finance ministry and IIFCL officials say the ministry has not cleared any refinance proposals as of 26 February, leaving it until 31 March—the end of the fiscal—to make sure the figure is reached. No refinance proposals have been received yet, said a senior finance ministry official on condition of anonymity.
The refinance window, amounting to Rs10,000 crore, had opened last year after the infrastructure lender was allowed to borrow that amount in tax-free bonds as part of the first stimulus package in December 2008. The money has since been invested in fixed deposits.
The government is pushing to improve India’s inadequate roads, ports and airports so that they do not act as a drag on economic growth.
IIFCL officials have said in the past that the refinance scheme would find few takers in the current context, with the banks’ cost of raising funds being much lower than the rate at which IIFCL lends money under the programme.
Under the scheme, IIFCL lends as much as 60% of the project cost to banks at 7.85%.
The government is considering diverting a portion of the amount marked for refinance into regular IIFCL lending.
IIFCL officials confirmed that an empowered committee overseeing the infrastructure lender has authorized it to use as much as Rs3,000 crore for its regular lending while another Rs1,500 crore will be transferred to public sector non-banking financial firms (NBFCs) such as Power Finance Corp. Ltd (PFC) and Rural Electrification Corp. Ltd (REC).
IIFCL’s outgoing chairman S.S. Kohli told Mint that part of the delay was because the government could not award projects during the first half of 2009 when the general election was being held—in keeping with the Election Commission’s code of conduct.
Of the Rs,3000 crore, “Rs1,500 crore we will use (this year) for our own resources. That has been allowed by the empowered (committee), but we are waiting for final approval”, Kohli said. “And Rs1,500 for NBFCs like REC, PFC and so on.”
The refinance money was originally meant for ports and highways up for bidding after 31 January. Then the scheme was modified to include large power projects capable of generating 4,000MW of electricity.
But “the money was lying idle. Money should be used for (the) development of infrastructure. So a part of the resources has been allocated to be used out of the funds raised as tax-free bonds”, Kohli said.
Analysts concurred that the lack of bankable projects probably contributed to the lack of interest in the scheme.
“If there had been a large number of projects, they probably would have used it (the Rs10,000 crore) up,” said Arvind Mahajan, an executive director at audit and consulting firm KPMG Advisory Services Pvt. Ltd.