Need to make lenders a party to concession agreements, says IIFCL chief

Lenders to infrastructure projects should be brought in as parties to the concession agreements, and any such move would help bolster their confidence in lending, PR Jaishankar, Managing Director, India Infrastructure Finance Company Ltd (IIFCL), has said.

India should also take steps to set up a secondary market at scale for infrastructure loans so that lenders can, when required, offload their exposures to institutional investors such as pension funds and life insurance companies, he told BusinessLine in an interview.

On the issue of bringing in lenders as a party in concession agreements, Jaishankar noted that any such move would ensure equitable allocation and distribution of risks.

“Today, a bilateral arrangement is between the concessioning authority and the concessionaire. This leaves out lenders, and lot of issues remain to be addressed. If we can have tripartite arrangements including lenders, problems such as termination payments (pertaining to lenders) will get resolved. Most lenders have large (nearly 70 per cent) exposure to a project, and they must have a skin in the game. The kind of risks perceived by lenders will get addressed if this kind of tripartite arrangements are introduced; this will help build confidence of lenders also,” he said.

If India has to get more private investments in infrastructure, this kind of confidence-building measures are more important, he said, adding that confidence begets investments. “If lenders form part of concession agreement, sizeable issues on finance and lending can be addressed.”

Jaishankar’s remarks are significant as it comes days before the Budget on February 1. The upcoming Budget — which is expected to give a healthy dose of impetus to public-private partnerships, especially in the health sector — could also be a platform where the Centre throws more light on the financing of ₹110-lakh-crore National Infrastructure Pipeline projects for next five years.

Reforms

The IIFCL chief felt more structural reforms are needed on the concessioning front and for certain bottlenecks like de-logging the payments system of the concessioning authorities.

He also stressed the need dedicated redress institution mechanisms (for arbitration, etc) to solve sectoral issues. At the same time, more teeth need to be provided for existing mechanisms as well.

Jaishankar also expressed hope that a conducive regulatory regime for Infrastructure Investment Trusts (InVITs) — which he believes have great potential in India — would get evolved in days to come, and players like State-owned IIFCL would be allowed to invest in such structures. Currently, RBI regulations do not permit NBFC-IFCs such as IIFCL to invest in InVITs, while scheduled commercial banks can do so, he pointed out.

The IIFCL chief has been advocating a “relay race” type system for infrastructure financing where the baton keeps passing from a set of banks to another set of lenders for long-term financing of infrastructure projects.

Meanwhile, speculation is rife that the Budget will see the announcement of a new development finance institution to take care of the long-term infrastructure financing needs of the country and provide an alternative to banks, which are already stretched. Such as proposal could go along with the much-talked-about investment holding company for public sector banks besides the introduction of a ‘bad bank’ to address the NPA worries of banks.

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