Govt no to IIFCL alternative fund use request

The government has turned down the suggestion of the India Infrastructure Finance Co (IIFCL) to use its refinance facility for other lending. The Rs 10,000-crore facility was announced last year to support private partnership projects in the infrastructure sector. After seeing a lukewarm response to the facility, IIFCL had proposed that the funds lying idle could be utilised elsewhere.

Official sources familiar with the development confirmed the government’s refusal to the proposal in anticipation of some projects seeking such loans coming up later. The Planning Commission is also not in favour of altering the scheme.

“Banks are not using the refinance facility. IIFCL wanted to use the funds raised for other purposes, but the government is not in favour of this at the moment,” said a government official.

The facility has not found any takers so far primarily for three reasons. First, IIFCL is allowed to refinance projects approved only after January 31, 2009. Second, only highway and port projects can use this facility, and third, banks are finding the rate of interest too high.

While the government has rejected the idea of changing the cut-off date, saying disbursals will start happening now as financial closure of projects takes time, it has tried to address the second issue by agreeing to extend the facility to railways and power too. The issue of higher interest rate for banks is the most critical now, as banks do not want to borrow from IIFCL at 7.85 per cent, when they have the option of raising funds at lower rates. IIFCL cannot offer the loans below this rate because it had raised the funds through a tax-free bond issue at a rate of 6.85 per cent.

Earlier, the government had allowed IIFCL to raise another Rs 30,000 crore through tax-free bonds in the current financial year. This can be raised only after the disbursal of the earlier fund. This means Rs 40,000 crore, which was provided as a stimulus, will be left unutilised.