India Infrastructure Finance Company Ltd (IIFCL) has lined up proposals worth Rs 3,600 crore for take-out financing, the Chairman and Managing Director, Mr S.K. Goel, told Business Line on Tuesday.
The company is awaiting the Cabinet's approval for the tweaked norms for take-out financing. The approval is “expected any moment” and once it comes, IIFCL would disburse the Rs 3,600 crore in less than a month, Mr Goel said.
IIFLC targets disbursement of Rs 7,000 crore through take-out financing, he said.
What Mr Goel says is significant because it means that the concept of take-out financing is at last beginning to take off. Take-out financing happens when a lender like IIFCL takes out loans off the books of another lender, say, a public-sector bank. A take-out agreement helps the first lender go ahead with lending to an infrastructure project, as he knows that he would keep the loan on his books only for a few years, say until the project is completed.
Amendments
The scheme did not take off because its features were not attractive. Now the regulations are being amended to sweeten it. Earlier, the first lender could not sell off the loan until one year after the commercial operation date (COD). Under the proposed scheme, a bank can sell its loan to IIFCL immediately after the project to which it lent money reaches COD.
More importantly, earlier only 20 per cent of the loan could be put under a take-out agreement, but now IIFCL, in a consortium with Life Insurance Corporation and Infrastructure Development Finance Company Ltd, will take out 50 per cent of the loans. Again, earlier, the tenor of the loan remained the same even after IIFCL took out the loans — the loans would remain on IIFCL's books for the residual years. But under the proposed scheme, IIFCL is free to increase the tenor.
All this makes it attractive to enter into take-out financing agreements with IIFCL and give loans to infrastructure projects.
IIFCL gets its funds from multilateral lending agencies, such as World Bank and Asian Development Bank, and it also raises funds through issues of tax-free bonds. It intends to raise Rs 10,000 crore this year, Mr Goel said. Its equity capital is Rs 2,000 crore but the Government has committed to putting in equity capital up to Rs 8,000 crore. This means that IIFCL can draw capital as and when it requires. The lender also has a UK subsidiary, which has a line of credit from the Reserve Bank of India (RBI), which provides funds out of forex reserves, for $5 billion. It has so far drawn $800 million — used for lending to infrastructure companies that need to pay for equipment purchases from abroad.
Armed with such long-term funds, IIFCL is able to lend long-term too — something that banks, with short-term resources, can do.
Mr Goel said IIFCL's loan book is today Rs 22,000 crore. But it has sanctioned loans worth $4 billion, which is another Rs 20,000-odd crore. Mr Goel reckons that IIFCL's loan book would rise to Rs 25,000 crore through direct lending and further add Rs 7,000 crore through take-out financing. IIFCL (UK) is getting ready to draw another $300 million from the RBI.