Govt to position IIFCL like China Development Bank
2 min read . Updated: 02 Dec 2020, 03:21 PM IST
Premium- The changes planned will convert the non-bank lender into a development finance institution that will lower its cost of finance and give access to a wider set of infrastructure projects which is expected to include premium housing
New Delhi: A new Bill to be tabled in the budget session of Parliament will seek to expand the financial muscle and scope of investment by state-owned Indian Infrastructure Finance Company Ltd (IIFCL), positioning it like the China Development Bank (CDB), the largest in class and a key institution backing Beijing’s growth strategy.
The changes planned will convert the non-bank lender into a development finance institution that will lower its cost of finance and give access to a wider set of infrastructure projects which is expected to include premium housing.
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IIFCL plans to tap about 10% of the ₹111 trillion infrastructure investment opportunity the government has envisaged over the next few years, supporting the efforts to turnaround the economy, said a person privy to the discussions in the government.
One of the key changes expected is to let IIFCL lend to all projects defined by the department of economic affairs as infrastructure, going beyond the ‘Scheme for Financing Viable Infrastructure Projects’ which IIFCL operates now. IIFCL is also likely to get flexibility to issue tax free bonds, raise cheaper short-term borrowing and to invest in infrastructure investment trusts (InvITs)—a tax efficient investment vehicle in the sector--as per discussions within the finance ministry, the person quoted above said.
IIFCL currently lends to projects at rates starting from 9%. With the flexibility to raise short-term debt, the lender’s cost of borrowing could come down to 6-6.5% from close to 9% now. At present, IIFCL cannot raise debt of less than ten years except to refinance high cost debt in a falling interest rate regime.
The other institution the government is looking at for cues for remodelling IIFCL is the Brazilian Development Bank or BNDES.
To boost economic growth, the finance ministry earlier this year launched a national infrastructure pipeline (NIP) with an investment plan worth ₹111 trillion aiming to build social and economic infrastructure for the next five years. Projects under this plan will see the Centre and states contributing 39% and 40% respectively toward costs, with private sector contributions making up the rest. Greenfield and brownfield projects worth more than ₹100 crore per project that may be at the conceptualization stage, under implementation and under development would be part of this initiative and are spread across sectors such as power, railways, urban development, irrigation, mobility, education, health, water and the digital sector.
Last year, the union cabinet had approved infusion of ₹5,300 crore into state IIFCL via recapitalization bonds to boost its lending capabilities. Infusion of ₹10,000 crore the current fiscal has also approved but is yet to be released.
One challenge before IIFCL and other infrastructure lenders, is the impact of the pandemic such as delays in project execution, award of new projects and labour migration. Lifting lockdown curbs and opening up of the economy since June is slowly leading to resumption in demand and is likely to improve revenue stream for developers, IIFCL said in its annual report for 2019-20 released on 21 October.
