Parekh panel's recommendations are premature: S K Goel
Q&A with IIFCL chairman
Deepak Parekh committee on infrastructure financing has called for re-inventing India Infrastructure Finance Corporation Ltd by making it a guarantor for projects and providing loans for a period over 20 years. In an interview with Vrishti Beniwal, IIFCL Chairman S K Goel says the recommendations are premature as the state-run lender’s role as a guarantor for long-term funds would depend upon the success of Credit Enhancement Scheme and Infrastructure Debt Fund. Excerpts:
How do you look at Parekh committee recommendations on a new role for IIFCL?
A note was placed by the Planning Commission suggesting that over a period of time IIFCL should take a very different role of the guarantor. In our new product on Credit Enhancement we are going to be a guarantor for raising the bond market. The second issue was about takeout finance. They said it should be done through Infrastructure Debt Fund (IDF) route. Our contention was the product is yet to be launched and we will come to know only after two years whether it is successful or not. So both the suggestions are premature. We should wait for two to three years before these products are launched. That was agreed in the meeting but since the note was already placed before the committee it formed part of the recommendations. Now it is for the appropriate authority to consider these suggestions.
Do you agree IIFCL should be lending for tenure of 20 years or more?
That is for the guarantee. They are saying it should be available for a long tenure. I have to test the product first to see whether there is enough market for a 20-year bond. So far even 10-year bonds find it difficult to get the investor. My wishful list may be very long but it should be practical too.
What is the update on your plans to have an IDF?
All the people who wanted to go for IDFs are still struggling with regulators. Our proposal is with Sebi as we want to start IDF through mutual fund route. We are ready with it. In principal approval is already there and as soon as I get final approval we will launch it. Initial investment will be $1billion.
Infrastructure requires $1trillion in the next five years. The government has taken some steps in the recent weeks. What else needs to be done?
Dependency on banking sector has to come down because banks are going to reach their exposure limits. There is an urgent need to have infrastructure bond market and to initiate that process we are coming with the credit enhancement scheme. First issue should be launched near 20th of this month. After that we have many issues lined up. Once we get the nerve of the market we would be able to say whether infrastructure bond market is really going to be successful.
What are your capital raising plans for this year?
RBI has given a special dispensation to IIFCL. As against the 15% capital adequacy for other NBFCs, for IIFCL they have reduced the requirement to 12% in view of the government’s support we get. So we may need around Rs 400 crore for next year. This year we are comfortable. Our reserves are also adding and reached almost a figure equal to our capital.
When do you plan to come up with your Rs 10,000 crore bond issue announced in last Budget?
We are waiting for the notification from the government. Once that is issued, within a month’s time we will be able to raise the amount. What we have to see is whether we want to raise entire Rs 10,000 crore in one go or in two tranches of Rs 5,000 crore each. We may go for a green-shoe option.
How do your sanctions and disbursements look like?
Between April and September we have been able to disburse Rs 5,400 crore for about 17 projects. A lot of disbursement is out of earlier sanctions. Our target for this year is Rs 10,000 crore. We have sanctioned about 17 projects of Rs 9,000 crore.
Initially there were hiccups in takeout financing scheme. How is it doing now?
It is a quite successful product. From January (when it got operationalised) to September we have achieved the target which we were trying to achieve by March 2013.