Why should a bank, which has assessed an infrastructure project and taken risks to lend to it, give away the loans for “take-out” after the project starts paying? This question posed by Mr B.K. Batra, Executive Director, IDBI Bank, is the crux of why ‘take-out' financing has not yet taken off in India.

Talking to Business Line on the sidelines of the Bancon 2011 conference, Mr Batra said that banks should have incentives for putting their infrastructure loans up for ‘take-out' financing, where the loans would be taken over by dedicated infrastructure finance companies such as India Infrastructure Finance Company Ltd (IIFCL). This ‘incentive' could be in the form of an upfront payment to the bank which is selling the loans, he said.

The government-owned non-banking finance company, IIFCL, the country's largest dedicated infrastructure financier, is awaiting the Cabinet's approval for liberalising the norms for take-out financing. In a recent interaction with Business Line , IIFCL's Chairman and Managing Director, Mr S.K. Goel, had said that liberalisation was in terms of when and how much an infrastructure loan could be taken-out by IIFCL.

IDBI Bank, incidentally, signed up with IIFCL in September for selling some infrastructure loans. Mr Batra said that the bank had proposed loans worth Rs 700 crore to IIFCL. But asked if he was satisfied with the easier norms for take-out financing, Mr Batra said he was not fully satisfied. He said that take-out financing, which is a common tool for infrastructure lending in the developed world, would take off only if the selling banks were adequately compensated. Otherwise, they would offer for take-out only such loans that would make them exceed their sector or group exposure limits.

After the infrastructure project is completed and begins to earn, the risk of the loan given for it comes down. The first lender should be compensated for assuming higher risks, Mr Batra said.

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