IIFCL moots dynamic structuring

In takeout financing IIFCL will enter into a pact with banks to take over some of their infrastructure loans on its books.

The total duration of an infrastructure loan and the number of years after which it will be taken over by India Infrastructure Finance Company Ltd (IIFCL) will be decided on a case-to-case , according to the guidelines prepared by the state-run lender on takeout financing scheme.

Takeout financing, where IIFCL will enter into a pact with banks to take over some of their infrastructure loans on its books, was announced by finance minister Pranab Mukherjee in his budget speech in July. In a report to the government recently on operationalising it, IIFCL has suggested banks get into an agreement with the institution at the time of extending such loans.

“Banks will have to enter into an agreement right from the first day. Overall tenure of the loan would depend on the concession period. This scheme will take care of the banks’ single and group exposure norms. For example, we can take over the loan if the bank has high exposure to a particular group company,” IIFCL chairman and managing director S S Kohli said.

According to sources, under the scheme the loan would be taken out of the books of the financing bank within five to seven years, after which IIFCL would take it over.

An area of concern is that IIFCL would have to plan for raising funds for the next several years, as it would be required to make commitments keeping in mind its resources at the time when it takes over the loan in future, sources said.

The report, prepared in consultation with Crisil, will be finalised after a final meeting of the empowered committee to be held shortly. The panel comprises the IIFCL chairman, finance secretary, expenditure secretary, planning commission secretary and additional secretary in the financial services department.

“The department of economic affairs has sent its views. It had raised some issues and asked for some data from IIFCL. We are yet to hear from the planning commission and the RBI on this. We have already sent many reminders to them,” a finance ministry official said.

Infrastructure projects need funds for over 10-20 years, but banks are not able to provide such long-term funds because their assets (deposits) are of a shorter duration (5-10 years). Takeout financing, an accepted international practice, will help banks address the issue of asset-liability mismatch by allowing them to transfer the loans to IIFCL after a particular number of years.