Press Information Bureau

Government of India

Ministry of Finance

05-January-2012 18:37 IST

Need for Developing New Instruments, like Credit Enhancement to Enable Increased Financing for Infrastructure Projects, Says FM; Launches the Pilot Transaction under Credit Enhancement Scheme, a Major Initiative of IIFCL

The Union Finance Minister, Shri Pranab Mukherjee has emphasized on the need for developing new instruments, like credit enhancement for providing increased financing for infrastructure projects in the country. The Finance Ministerwas speaking after launching the Pilot transaction under Credit Enhancement Scheme, a major initiative of Indian Infrastructure Finance Company Limited (IIFCL) here today. The Finance Minister Shri Mukherjee said that this alternative mechanism of fund availability to infrastructure project developers would go a long way in development of infrastructure bond market through creation of new class of investors like Insurance Companies and Pension Funds. This would also free-up Banks’ capital for financing new projects, the Minister added.Shri Mukherjee also lauded the efforts and initiatives of IIFCL, LIC of India, HUDCO and Seven major public sector Banks on coming together to create a mechanism to facilitate faster and smoother availability of funds to infrastructure sector in the country.

On the occasion, the approval letter from IIFCL to the first pilot transaction under this scheme was handed over to GMR Jadcherla Expressway, an SPV of GMR group. To further support the financing of infrastructure projects and smoothen the availability of credit to them, an MoU was also signed among IIFCL, LIC of India and seven major Public Sector Banks namely State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, Union Bank of India, and IDBI to create a financing mechanism for direct financing of infrastructure projects. The financing mechanism created through MoU would enable developers to fast-track the achievement of financial closure and hence commence the construction of projects more quickly. This mechanism would provide a single window to the developers to approach multiple lending institutions which would save time and money on appraisal and sanction of projects.

An MoU was also signed between IIFCL & HUDCO on the occasion to support initiatives for infrastructure financing in India through joint pooling of respective complimentary resources and expertise of both the organizations.

Under Credit enhancement, IIFCL in association with Asian Development Bank (ADB) would provide credit rating enhancement to the bond issue programme of an infrastructure company to make it an eligible investment grade instrument mainly for long-term investors such as insurance companies and pension funds through extension of Partial Credit Guarantee. This would be a win-win product for all players in the financial market – the lenders, the investors, and the developers. It would help address twin constraints in bank lending viz. Asset-liability mismatch and prudential group and sectoral exposure norms and would simultaneously free up capital for creation of new assets. The developer would also derive benefit from the scheme by way of reduction in interest cost, stability and certainty of debt obligations due to fixed rate of interest in place of floating interest rate of banks, and freeing up of exposure limits of banks on them. The scheme would enable channelizing of long-term funds from fairly untapped resources such as insurance companies and pension funds to the infrastructure sector and would also help in development of corporate bond market in the country.

Shri D.K. Mittal, Secretary, Department of Financial Services (MoF) while welcoming the gathering appreciated the banks, LIC, HUDCO and IIFCL for providing a new facilitation and financing mechanism for infrastructure developers and also lauded the launch of First Pilot Transaction under Credit Enhancement Scheme of IIFCL.

Also present on the occasion Shri D.K.Mittal,Secretary, Department of Financial Services, Shri Rakesh Singh, Additional Secretary, Financial Services, Shri S.K. Goel, Chairman & Managing Director, IIFCL, Chairman, HUDCO, Chairman of PFRDA and LIC, CMDs of seven PSBs including SBI, IDBI,Canara Bank,PNB,Bank of Baroda,Union Bank of India, Bank of India and other senior Government officials, senior Bankers and Infrastructure project Developers among others.

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DSM/SS

Credit enhancement enabling infrastructure bond market access and long-term investor participation, freeing bank capital and facilitating project financing. The Government launched a pilot Credit Enhancement Scheme administered by IIFCL, using partial credit guarantees (in association with an international partner) to uplift infrastructure bond ratings and make them eligible for insurance companies and pension funds. MoUs among IIFCL, LIC, seven public sector banks, and HUDCO create a single-window financing mechanism to accelerate financial closure, address bank asset-liability and exposure constraints, free bank capital, and channel long-term funds into infrastructure while reducing developers' financing costs.