COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES

IDFC devises new infrastructure finance scheme for banks

The Infrastructure Development Finance Company has devised an innovative scheme called Takeout Financing to bail out commercial banks from the possibility of assets-liabilities mismatches in future while financing the long-term infrastructure projects.

IDFC chairman Deepak Parekh told mediapersons that Indian banks with their smaller size of operations and deposit growth could now participate in infrastructure financing through the IDFC scheme that has been designed to support risks and liquidity to the participating banks.

The scheme aims at evolving the risk profile of projects and then to allocate the risks to those best able to assume them that will determine the extent to which some specific issues arising in the complex field of infrastructure financing will be addressed.

Today, IDFC has signed an agreement with State Bank of India to channalise about Rs 4 billion from SBI to three identified projects -- Bharati Telenet, Narmada bridge and the Coimbatore bypass -- through the takeout financing structure.

In the next five years, SBI's contribution in the scheme might go over Rs 50 billion, said SBI chairman Maya Shankar Verma. SBI is likely to invest about Rs 200 billion directly or indirectly in various infrastructure projects in the country.

Verma said the takeout financing structure would invite banks and financial institutions to participate in infrastructure financing for a specific term and at a preferred risk profile that suits their own appetite with IDFC standing behind the structure and willing to takeout the obligation after a specified period.

This ensures that the project achieves its goal of long-term funding though the participants in the loan would alter as the project progresses.

In the structure, both IDFC and SBI participated in the credit risk for the principal and interest respectively for a period of five years through joint documentation with the other lenders and the project company.

Such financing structure was a new and innovative instrument never before attempted in Indian environment, Parekh said and added that IDFC would go for similar more agreements with other banks and institutions for enhancing the credit flow to infrastructure projects and reducing the risk factors to banks and institutions.

Next week, IDFC will float private placement bonds of Rs 7 billion for augmenting resources from Life Insurance Corporation, Unit Trust of India and other institutions. At present, it has an equity capital of Rs 10 billion and is in the process of developing both instruments and techniques to lead private capital to commercially viable infrastructure projects in India.

UNI