India's top seven public sector banks, Life Insurance Corporation of India, and India Infrastructure Company Ltd are planning to join forces to give a fillip to large infrastructure projects.
State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India, Union Bank of India and IDBI Bank, the country's largest life insurance company (LIC) and the Government-owned non-banking finance company (IIFCL) are working out the modalities of undertaking joint appraisal and co-financing of infrastructure projects.
This consortium of nine State-owned financial intermediaries will constitute a committee of senior officials to consider the viability of large infrastructure projects (entailing a capital expenditure of Rs 1,000 crore or more).
Pact for financing modalities
A memorandum of understanding to formalise the joint infrastructure project financing arrangement is in the works.
The move to stitch together a grand alliance to put big infrastructure project proposals on the fast track comes at a time when inadequate infrastructure in segments such as roads, ports, airports, railways, power, oil and gas pipelines, irrigation, and water supply and sanitation is proving to be a constraint on growth, say bankers.
“Currently, a project developer or his debt arranger has to go to each bank and financial institution to get his project vetted and get loan sanctioned.
Hence, it takes a long time to achieve financial closure.
This delays commencement of the project.
Single point of contact
“Once this consortium of banks, LIC and IIFCL begins joint operations, project developers can look forward to a single point of contact for loan appraisal and sanction. So, projects can be quick off the blocks,” said a senior executive with a State-owned bank.
The combined balance-sheet strength of the above mentioned entities will ensure that large viable infrastructure projects will be fast-tracked.
Besides interest income, they can also earn a decent fee income.
Currently, the project developer pays fee to debt arrangers for helping tie up funds.
According to the Planning Commission's Draft Approach Paper for the 12th Plan (2012-2017), special attention needs to be paid to the financing needs of private sector investment in infrastructure.
The Paper has assessed that infrastructure investment will need to increase from about eight per cent of gross domestic product in the base year (2011-12) of the Plan to about 10 per cent of GDP in 2016-17.
Investment in infrastructure
The total investment in infrastructure would have to be over $1 trillion (Rs 53 lakh crore at the current exchange rate) during the 12th Plan.
A significant part of the supportive framework to enable manufacturing to expand rapidly in line with both domestic and overseas demand is the rolling out of adequate physical infrastructure support including electric power, railways, roads and ports, the Paper said.
According to the latest Reserve Bank of India data, infrastructure credit accounted for 14.11 per cent (or Rs 5,79,968 crore) of the non-food credit of Rs 41,10,331 crore as on November 18, 2011.