Infrastructure project developers can soon get larger amount of foreign currency loans at much cheaper rates to fund projects in India.
IIFC (UK), the London-based wholly-owned subsidiary of India Infrastructure Finance Company Ltd (IIFCL), has slashed interest rates on long-term foreign currency loans for developers of infrastructure projects in India.
The lending rate on such loans will now be at Libor plus 200 basis points, against the earlier Libor plus 400-475 basis points, said S. K. Goel, Chairman and Managing Director of IIFCL.
Savings level
This would translate into savings of 200-275 basis points for the project developer, but would reduce profit margins of the London subsidiary, he said.
“By reducing our lending rate in foreign currency loans and passing on the benefits to Indian developers, we are going to take a hit on our profit margins in the overseas arm,” Goel said.
State-owned IIFCL had in 2008 set up a London subsidiary to provide foreign currency loans to Indian infrastructure project developers, who could avail themselves of loans to import capital equipment.
IIFCL has a dedicated desk (for IIFC (UK)) in India to handle foreign currency loan requests of project developers.
Another decision taken in the recent board meeting of IIFCL’s London arm was to remove the ceiling of 20 per cent of the total lending by IIFC (UK) in any accounting year to private projects.
Simply put, IIFC (UK) can give any amount of loan to private infrastructure projects in India once this decision is approved by the Finance Ministry and the RBI.
Prior to this decision, IIFC (UK) was bound by a 80:20 rule that required it to give 80 per cent of its lendable resources to public private partnerships (PPPs) and the rest to private projects.
PPP demand
“The demand from PPPs was not all that inspiring. There was more demand from private projects, and we could not do much as headroom was not there. We had already exhausted the limits for private projects,” Goel said.
Of the 56 proposals that came to the IIFC (UK) in the last two years, only 12 were PPPs. The rest were private projects, Goel said.
The third decision is to extend the facility of takeout finance scheme for IIFC (UK) borrowers, which could be done on external commercial borrowings and to the extent of 100 per cent of the residual amount.
So far, the takeout finance scheme was available from IIFCL in respect of domestic lending only.
Once the two decisions — removal of 20 per cent limit and introduction of takeout finance — are operationalised, the entire RBI provided line of credit of $5 billion will be exhausted in a year
Till end-August 2012, IIFC (UK) disbursements stood at about $850 million.