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MUST TO SUSTAIN GROWTH: Dr P. J. Nayak, Chairman and Managing Director, UTI Bank, and Mr S.S. Kohli, CMD, India Infrastructure Finance Company Ltd, at a press conference in the Capital on Tuesday. - Kamal Narang

New Delhi March 13 UTI Bank and India Infrastructure Finance Company Ltd (IIFCL) have entered into a memorandum of understanding (MoU) for among other things co-financing of infrastructure projects. This was the 11th MoU signed by IIFCL, a wholly owned enterprise of the Government.

Under the MoU, UTI Bank and IIFCL propose to cooperate and complement each others' capabilities in the areas of creating a deal flow of infrastructure projects that could be structured along commercially viable lines. The MoU also provides for credit appraisal, commercial due diligence, syndication of funds and co-financing of projects.

Currently, UTI Bank's exposure to infrastructure projects stood at Rs 3,800 crore. IIFCL has so far sanctioned Rs 8,500 crore for 46 projects.

Asked whether it makes good commercial sense for banks to look at infrastructure financing when costs of funds have gone up in the recent months, The UTI Bank CMD, Dr P.J. Nayak, said that much depends on whether pricing of infrastructure products can respond to rising interest rate environment.

"If the answer is no because product prices are under control by regulations of the Government, then it becomes less attractive. Where the products are subject to price controls, you will see some dampening on investments in infrastructure. It will have lower impact on demand for infrastructure where they are not subject to price controls," he said.

However, Dr Nayak said that he expected investments in the public sector to continue in new projects.

IIFCL Chairman and Managing Director, Mr S.S. Kohli said that hardening interest rates was a "temporary" occurrence and pointed out that infrastructure was a long-term story.

"This issue of hardening interest rate should not be major issue. It is temporary. Rates are anyway reset after 2-3 years. Hopefully things should improve. Infrastructure is long-term phenomenon. If we don't focus on infrastructure, we cannot sustain GDP growth," Mr Kohli said.

IIFCL has so far sanctioned Rs 8,500 crore for 46 projects. For 24 projects, documents have been executed and financial closure has taken place in the case of 29 cases. In 2006, disbursements took place for eight projects.

Dr Nayak also highlighted that pricing in both manufacture and infrastructure was moving towards floating interest rate loans as against fixed returns.

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