IIFCL takeout plan raises concern

The takeout financing scheme of the India Infrastructure Finance Co (IIFCL) has raised eyebrows. The Planning Commission has expressed concerns about the proposed scheme where the state-owned lending institution will take over some infrastructure loans of banks on its books.

The plan panel has said IIFCL was a 100 per cent government-run institution and any default, breach of exposure norms, or rise in bad loans could badly affect the government’s reputation. It has suggested that IIFCL must take some risk on its own and limit government’s exposure to the projects under the scheme.

“The Planning Commission has sent its views to the finance ministry. It has got some issues. It says some risks are involved in the scheme and the government cannot be held responsible if things go wrong in future. It wants IIFCL to take the responsibility for the loans it takes over. IIFCL will respond to this in the next meeting of the empowered committee,” an official source told Business Standard.

The takeout financing scheme was announced by the government in the Budget last year. About two months back, IIFCL submitted the structure of the scheme, prepared by Crisil, to the finance ministry.

“As per the scheme, IIFCL will take over long-term loans of 15 to 20 years from banks after the commercial operation date is achieved. It will exit at some point by giving it to insurance and pension funds, failing which it will have to hold the loans till maturity and that involves a risk,” sources said.

Another area of concern is that IIFCL will have to ensure at the point of entering into a contract that it has enough funds at the time of taking over the loan in future. It will be required to plan in advance for raising funds after a particular number of years. The finance ministry wants to resolve this issue at the earliest, so that the scheme could be operationalised without any delay.

“Some decision should be taken this year because the announcement was made by Finance Minister Pranab Mukherjee in Budget 2009-10,” said a finance ministry official, adding that the scheme would not become operational this financial year even if it was finalised in the next few weeks.

Under the scheme, the total duration of an infrastructure loan and the number of years after which it will be taken over by IIFCL will be decided on a case-to-case basis. Banks will get into an agreement with IIFCL at the time of extending such loans. The scheme will take care of the banks’ single and group exposure norms as they would be able to transfer the loan to IIFCL after servicing it for the first five to seven years.