India may cut its loan pipeline

Running risk of exceeding borrowing limit from World Bank

India may cut its loan pipeline from the World Bank or pre-pay some of the amount as it is running the risk of exceeding the borrowing limit from the global lender in next three years.

The country is also exploring the possibility of co-financing some projects with the private sector. At the same time, negotiations are also going on with the multilateral agency to increase the limit.

Currently, the World Bank’s single borrower limit (SBL) — difference between the loan disbursed and the amount repaid — for India is $17.5 billion.

At the end of June 2011, its outstanding exposure to India had reached $11.4 billion, and is expected to go up further in the next few years as loan volume goes up. “The ceiling may be breached in 2014-15,” said a government official. “We are looking at ways how to stay within this limit. Either we can pre-pay the loans or cut down on the loan pipeline. We can also look at co-financing from the private sector.” The government was cautious on borrowing more, he added.
 

MONEY MATTERS

* India is running the risk of exceeding the borrowing limit from the global lender in next three years

* Currently, the World Bank’s single borrower limit — difference between the loan disbursed and the amount repaid — for India is $17.5 billion 

* At the end of June 2011, its outstanding exposure to India had reached $11.4 billion, and is expected to go up further in the next few years as loan volume goes up 

* Before the financial crisis hit the world, the average commitment from the Bank to India was about $2.5 billion

* At the end of June 2010, the Bank had 75 active projects in India. The net commitment for these projects was about $21.4 billion

Officials said going forward, the Bank might undertake projects which could help leverage funds from other sources (such as private funds) during scaling up. At present, private co-funding is not used. SBL is indicative of the risk-bearing capacity of the World Bank and indicates, in dollar terms, its ability to manage income losses — in the highly unlikely event — if a large borrower falls into non-accrual status.

For India, SBL was increased by $1 billion from $16.5 billion in 2010 in the light of the global financial crisis. However, in its review in June this year, the Bank left the limit untouched at $17.5 billion for India. Said another official: “We will stop getting fresh money from the World Bank if the limit is breached. So we will either ask the World Bank to increase the capital base or prepay or raise the limit.”

A World Bank spokesperson, in response to an e-mail query, said the limit is reviewed by the institution each year for its most creditworthy and largest-borrowing countries in terms of population and economic size, and is adjusted if deemed appropriate.

On the possibility of India exceeding the limit in the next few years, he said it depended on a variety of factors, including the country’s demand for loans from the World Bank as well as the progress of disbursements for the projects already approved.

Before the financial crisis hit the world, the average commitment from the Bank to India was about $2.5 billion. In financial year 2009-2010 (July-June), it increased to $9.3 billion and came down to $5.5 billion in 2010-11.

The World Bank loans are provided to developing nations at concessional rates of as low as 0.75 per cent per annum. India is the largest borrower of the Bank. At the end of June 2010, the Bank had 75 active projects in India. The net commitment for these projects was about $21.4 billion.