The Hindu Business Line : Banks, FIs to fund urban local bodies

Loan facility
The Rs 3,000 crore facility has been pooled by 15 banks and arranged by the ILFS, IDBI and other FIs
The advances would be repayable after 10 years with a three-year moratorium, at 9.5 per cent coupon

Bangalore , Oct. 13

A clutch of banks and financial institutions (FIs) have come forward to fund urban local bodies to improve their civic infrastructure.

The Rs 3,000 crore facility has been pooled by 15 banks and arranged by the Infrastructure Leasing and Financial Services Ltd, IDBI, India Infrastructure Finance Company Ltd and Canara Bank. The pooled municipal debt obligation facility would be in the form of a loan earmarked to individual local bodies. The advances would be repayable after 10 years with a three-year moratorium, and an interest of 9.5 per cent.

Without precedent

This is the first time that banks and FIs are coming forward to fund urban local bodies. In the past, only the Life Insurance Corporation of India and HUDCO were prepared to fund such local bodies on the strength of State Government guarantees.

Traditionally, however, urban local bodies have relied exclusively on government grants for meeting their capital funding requirements. Speaking on the occasion, the Ministry of Finance, Special Secretary, Mr Vinod Rai, said, "Local bodies now have to put in place a discipline of levying user charges."

Loans basis

Loans from the facility would be allowed only after appraisal of the individual projects and on the basis of implementation of covenants, according to the ILFS Chief Executive Officer, Mr Pradeep Puri. The covenants included providing a charge to the lenders on some of the borrowers' receipts. This facility, he said, would help part finance a wide range of civic infrastructure assets under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

Drawals from the facility would also be allowed for refinancing the existing high cost project loans. This was because many of the local bodies/municipalities were still carrying debts with interest rates of 13 per cent plus, he added. Some local bodies for the funding have already been identified. These include local bodies in Madhya Pradesh, Maharashtra and Tamil Nadu.

Negotiations were also under way with multilateral agencies for expanding the fund corpus. Besides, Mr Puri said discussions were also held with the Securities and Exchange Board of India and the Reserve Bank of India for conversion into a fund that would remain outside the scope of capital market guidelines.

More Stories on : Credit Market | Urban Development

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Forex reserves fall by $30 million

Rupee firm against dollar

UTI Bank net up 30 pc in Q2

SBH ties up with Indo Farm Tractors

RBI paper on harmonised consumer price index

Canara Bank to open branch in Hong Kong

Deccan Aviation in deal with 2 European banks

`Inflation rise not to impact interest rates'

First instalment of oil bonds expected on Oct 16

Bond prices fall

Banks, FIs to fund urban local bodies

Banks' CD ratio rises in Kerala

Gross bank credit up

Call rates up at 6.50-6.70 pc