The National Bank for Financing Infrastructure and Development (NaBFID) plans to roll out take-out financing to help commercial banks overcome asset-liability mismatches in infrastructure financing.
Further, to encourage infrastructure companies to raise resources via bonds, the development finance institution (DFI) is working to provide credit enhancement to boost the rating of these bonds and inspire investor confidence.
De-risking
“In the infrastructure segment, take-out financing is going to be a very important element in the future. Earlier, there were reservations in financing infrastructure projects as certain things went wrong. But today the ecosystem has fully evolved. The government has taken all steps to de-risk infrastructure projects, whether it relates to land acquisition, environment clearance, better concession agreements, better counterparties such as NHAI, Power Grid, etc,” Rajkiran Rai G, Managing Director, NaBFID, told BusinessLine.
Rai noted that all forms of enablers were put in place over the last seven years to ensure infrastructure financing is not as risky as it once used to be.
Referring to the asset-liability mismatch facing commercial banks in infrastructure financing, the NaBFID chief underscored that while banks extend long-tenor loans to infrastructure projects, their liabilities are relatively short-term. The maturity of assets (infrastructure loans) is much longer than that of liabilities.
“So, infrastructure financing has to be sufficiently long-term. NaBFID comes in here. When it comes to take-out financing, the understanding is that commercial banks will participate in the initial phase of an infrastructure project with an agreement that, at the end of the fourth or fifth year, the loan will be taken over by NaBFID or other institutions.
“The project loan could be for 20 years, but banks will exit at the end of five years. So, this is where take-out financing will gain importance. As a product, it is already available. But the ecosystem was not congenial for it to come to the fore,” Rai said.
Now is the time to develop the product, perhaps with suitably amended regulations, so that commercial banks are more comfortable lending to the infrastructure sector, he added.
Operational assets
He emphasised that operational infrastructure assets would necessarily have to be financed by the bond markets.
“For that also the ecosystem is ripe now. We have seen the success of the National Highways Authority of India (NHAI) Infrastructure Investment Trust (InvIT) bond issuance… The earning for the retail investors on these investments is much higher than in government securities or bank deposits.
“We want infrastructure companies to issue bonds on the lines of NHAI’s InvIT. Now, these companies may park their assets in an InVIT and issue bonds. They have to be enabled to issue the bonds. So, credit enhancement as a product has to evolve,” Rai said.
Credit enhancement
He noted that though the RBI had issued guidelines “on Partial Credit Enhancement to Corporate Bonds” in 2015, the product did not take off because issues relating to capital and other requirements have to be fine-tuned to make it viable.
“Now, if infrastructure companies with operational assets have to raise resources via bonds, they need a minimum rating of ‘A’ or ‘AA+’. Most of them don’t get that rating.
“With credit enhancement, their rating will improve. NaBFID can help with this. So, we are also working on this product. Maybe, in six months to one year, you will see NaBFID coming out with credit enhancement and take-out financing,” Rai said.
NaBFID was operationalised on December 29, 2022. It was established by an Act of Parliament to support the development of long-term non-recourse infrastructure financing in India, including the development of the bonds and derivatives markets needed for infrastructure financing, and to carry on the business of infrastructure financing.
The DFI, which has so far disbursed about ₹15,000 crore to infrastructure projects, expects to end FY24 with loan sanctions of ₹1 lakh crore and disbursements of about ₹60,000 crore