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Signs MoUs with 3 public sector banks for big ticket funding

PUSH TO INFRASTRUCTURE LENDING: (From left) Mr S. S. Kohli, Chairman and Managing Director, India Infrastructure Finance Co Ltd; Mr C. P. Swarnkar, Chairman, Syndicate Bank; Mr Rakesh Singh, Joint Secretary, Ministry of Finance; Mr M. B. N. Rao, CMD, Canara Bank; and Mr Prakash P Mallya, Chairman, Vijaya Bank, at a press conference in Bangalore on Wednesday. - G. R. N. Somashekar

Bangalore , Dec. 20

The India Infrastructure Company Ltd (IIFCL) has received sovereign guarantees for raising Rs 5,000 crore for funding big-ticket projects in the country.

Speaking to newspersons here on Wednesday after signing a memorandum of understanding (MoU) with the three public sector banks — Canara Bank, Vijaya Bank and Syndicate Bank, the IIFCL Chairman and Managing Director, Mr S.S. Kohli said, "We have the option of raising the funds either from the domestic or international markets."

IIFCL was already in discussions with a clutch of institutions for raising Rs 7,000 crore for meeting its project funding requirements, Mr Kohli said. Several global venture capital funds had also expressed interest in extending the funds to the IIFCL either direct debt or in the form of equity, he said.

Credit appraisal

IIFCL's funding for projects would be in the form of direct participation in project loan syndications along with the banks or in the form of refinancing support to the lending institutions. This was because bank finance for infrastructure was likely to face asset liability mismatch problems in view of the long lending tenures. The MoUs with the three banks involved providing IIFCL's support in their project lending efforts. This included participation in big-ticket loan syndications. He said that in all the funding arrangements, IIFCL would function on the basis of the credit appraisal and due diligence reports of the banks

Sanctioned projects

Till date, Mr Kohli said that IIFCL had sanctioned Rs 6,800 crore for infrastructure projects involving a total project cost of Rs 45,000 crore. Canara Bank was lead bank in 13 projects. Syndicate Bank was the lead in four projects and Vijaya Bank was the syndicate leader in two projects. So far, IIFCL had signed 10 MoUs with banks and financial institutions.

Exposure to projects

Banks such as Canara Bank and Vijaya Bank already have substantial exposures in infrastructure projects that include power, roads, telecommunication and urban projects. Canara Bank now has an exposure of Rs 12,000 crore in the sector. But Canara Bank's Chairman and Managing Director, Mr M.B.N. Rao said, "We intend pushing up this figure to Rs 20,000 crore by this year end."

Vijaya Bank's exposure is Rs 3,500 crore in the sector. However, the bank's Chairman and Managing Director, Mr Prakash P. Mallya said, "There are some concerns on assets liability mismatches (ALM)." IIFCL participation would address these concerns, he added, and allow the bank to raise exposure in the sector that is already about 14 per cent of gross advances.

Other lending risks

Besides ALM concerns, banks were also faced with other lending risks in project financing. The Syndicate Bank's Chairman and Managing Director, Mr C.P. Swarankar, said the risks involved interest, liquidity and credit risks.

"IIFCL's participation will partly help in addressing these concerns," he added.

As far as interest rate risks were concerned, Mr Swarankar said that there would be no fixed rate lending for projects.

Lending would on commercial terms, that could involve floating or periodic resets in loan covenants, he added.

The initiative to accelerate funding of large projects was taken by the Government, said Mr Rakesh Singh, Joint Secretary in the Ministry of Finance. Funding requirements for infrastructure was estimated at $360 billion or about Rs 3 lakh crore per annum. Even assuming a conservative debt equity ratio of 3:1, bank funding would have to be at least Rs 2.25 lakh crore each year, he said. These investments in infrastructure were necessary to sustain the high GDP growth of 9 per cent, he added.

More Stories on : Public Sector Banks | Infrastructure

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