According to reports, infrastructure funding arm IIFCL should become a guarantor and provide loans for a period over 20 years to encourage projects attract long-term financing, said a Prime Minister appointed high-level panel.
India Infrastructure Finance Company Ltd (IIFCL) should only lend for tenures of 20 years or more since commercial banks are able to lend for up to 15 years, said HDFC Chairman Deepak Parekh led panel in its interim report submitted to the Prime Minister today.
“The most important one is we have to restructure the IIFCL. The focus of IIFCL should change from also being a lender to a guarantor,” he said here.
“It is a 100 per cent arm of the government of India and we need to give credit enhancement to infrastructure projects.
The idea is, if an infrastructure project is a new SPV or new infrastructure project does not have the AAA or AA+ rating, credit enhancement by IIFCL can get to that rating. In which case, insurance companies can invest,” he said.
The government has already liberalised investment norms by insurance companies. It has been proposed that 12.5 per cent of total fund can be invested in the non-AAA bonds by the insurance companies.
These recommendations are aimed at attracting Rs 51.46 lakh crore for funding infrastructure sector during the 12th Five Year Plan (2012—17). This is about 9 per cent of the GDP.
The government, the report said, should draw “a time-bound action plan…with a view to improving the enabling environment for private investment which is expected to finance about 47 per cent of the projected investment during the 12th Plan.”
Parekh said the final report of the high level panel would be submitted in March 2013.
The company, the report said, should start raising funds on the strength of its balance sheet instead of sovereign guarantees. The government may provide callable capital to IIFCL to meet the capital adequacy norms.
It should provide subordinated debt for up to 10 per cent of the approved projects costs in accordance with its extant scheme.