Under the finance ministry’s new announcement, the revenues of a project will be transferred to the trust, which will then issue units to investors. Shilpi Aggarwal says the government is seeking innovative financing solutions for infrastructure.
The infrastructure sectors have been facing a tough time witnessing a slowdown in capital infusion. Owing to the asset-liability mismatch (ALM) and exposure limit breaches, financial institutions are becoming increasingly wary of further doling out money to the sector.
As major infrastructure development is in a dire need of a substantial influx of investment capital, the government is taking a serious note of the situation and is planning to create a new Infrastructure Trust Fund (ITF), Arvind Mayaram, Secretary, Department of Eco¡no¡mic Affairs (DoEA), Ministry of Finance announced.
Addressing the third International Summit on Infra¡structure Finance organised by ASSOCHAM on 20 September in New Delhi, Mayaram said the structure of the new ITF will be finalised in next two months. ‘Under the new structure, the underlying revenue of a project will be transferred to a trust and the trust will issue units to investors, including private and foreign investors.’The new structure is popular in countries like Singapore, Hong Kong and the US.
‘We are also looking into requests coming from the industry on setting up dedicated infrastructure banks which will exclusively cater to the financial requirements of the infrastructure projects, said Union Minister for Road, Transport and Highways, Oscar Fernandes in his address at the conference.
Attended by leaders of the infrastructure industry and some top-rung banks and financial institutions, the event focussed on the viability of the public-private partnership (PPP) model in infrastructure sector, challenges faced in securing finance by private players, financing options available to them and a debate on how to make the available options a win-win for borrowers as well as lenders.
Of a 12th Five Year Plan expenditure of approximately $1 trillion towards infrastructure, $500 billion is expected to come from the private sector. BK Chaturvedi, Member, Planning Commission, stated, ô$500 million has been spent so far.’Chaturvedi admitted to the seve¡ral challenges faced by private developers on account of environmental and regulatory clearances, and said that the government is working on resolving them. ‘Most of them are resolved, but process takes time because infra¡structure projects are difficult projects.’
Banking concerns
The rapid growth in bank credit to infrastructure has resulted in greater concentration of risks in banks. Currently, most of the banks have reached or are close to reaching the prudential caps for these sectors. Therefore banks are finding it difficult to infuse large funds for infra¡structure lending in those sectors.
Voicing the concerns of banking community, Rajeev Mahajan, President, MD & Regional Business Head (North & East), Yes Bank, said, ‘Although India has a high savings market, we are still in need of long term financing (20 years or above) for infrastructure projects, due to a lack of depth in the fixed income markets. Savings need to be channelled for the development of the sector one such platform would be a strong corporate debt market with long tenure investment opportunities.’
Harsh Kumar Bhanwala, Executive Director, India Infrastructure Finance Company (IIFCL), said, ‘A majority of the infrastructure companies also face pa¡ city of sourcing equity finance. The government needs to take a new approach to restructuring the finances of infrastructure projects. Pension and insurance funds need to be channelled to infuse capital in this space.’
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