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India's Leading Infrastructur Companies 2013



Q. What are the key challenges faced by the infrastructure sector? According to you, what steps should be taken to overcome these challenges?

A. The challenges may be classified as generic and sector specific. The major generic challenges include the lack of availability of long-term debt funds, limited availability of equity funds owing to limited number of developer groups and required regulatory clearances. The sectoral challenges include land acquisition issues, lack of capacity in urban infrastructure sector; shortage of coal for power production etc. To overcome generic challenges, the existing financial architecture should be improved by strengthening the existing institutional framework and by way of innovative solutions. Towards this, IIFCL has introduced the takeout finance, credit enhancement and subordinate debt products, which aims at augmenting funds for the sector. For the issue of regulatory clearances, there should be a single window clearance or time bound clearances for infrastructure projects. However, a number of steps have been taken by the Government and I am sure that going forward these steps shall yield significant results.

Q. There is a wide gap between the demand and supply in infrastructure finance. What initiatives according to you should be taken to bridge these gaps?

A. While the reliance on traditional sources of financing for infrastructure sector may be limited, it is necessary to source increased flow of funding from other ‘long term’ sources such as insurance and pension funds, sovereign wealth funds etc. Further, a vibrant corporate bonds market is also needed to supplement channelisation of long term funds towards infrastructure sector. The recent Government initiative of Infrastructure Debt Fund (IDF) is aimed at channelizing such resources towards the Indian Infrastructure sector. Government has also allowed IIFCL to undertake a few pilot transactions under an innovative initiative of credit enhancement aimed at moving money from insurance & pension sector towards infrastructure.

Q. There has been an increase in trend of loans to infrastructure projects being restructured in the last few years. What steps can be taken by banks or NBFCs to mitigate default risk and further asset quality deterioration in the coming years?

A. Infrastructure project financing is a long-term contract resulting in many challenges due to the changing economic situation. There exists two key issues; first is the limited number of developer groups in this sector which has created liquidity pressure for such groups leading to the issue of overleveraging; second is the aggressive revenue projections made for some infrastructure projects during high growth period which is not being achieved during slow growth period. Due to these problems, the infrastructure projects are being restructured in slow growth period. Lenders need to be more cautious while examining the revenue estimates as the estimates made during high growth period may not be achievable during slow growth period and for infrastructure projects upturns and downturns in the economy are expected due to the long tenure of projects. Most of the PPP infrastructure projects offer comfort and safety by way of termination payment guarantee by the Concessioning authority and 80% of IIFCL’s financial assistance is offered to PPP projects.

Q. What opportunities do you see for the infrastructure sector by 2020? How is your company planning to tap those opportunities?

The sector has tremendous opportunities. As per the 12th Five Year Plan, an infrastructure investment of USD 1 tn is envisaged and around 47% is expected to come from the private sector in India. The debt requirement works out to be approximately USD 330 mn. IIFCL has recently been allowed to provide financial assistance to all the infrastructure subsectors as per the harmonized list of infrastructure approved by the Cabinet in March, 2012. IIFCL has also been permitted to extend loans of tenure longer than the consortium in case of the takeout financing scheme and similar dispensation is permitted for the direct lending scheme. Due to asset liability constraints, banks typically extend loans to infrastructure sector for medium term (around 10 years) despite the concession agreement or the project tenures being long (20-25 years). These changes would allow IIFCL to extend longer loan tenures keeping in view the long concession term/project term. This would be in addition to the benefit of 1% p.a. interest savings offered by IIFCL under its takeout finance scheme. These steps would enable IIFCL to participate in the infrastructure development of the country in a larger way.