 "Overseas investors bullish on infra debt funds: Chanda Kochhar")
Evolution of infrastructure debt funds (IDFs) as key financing vehicles for the infrastructure sector is also expected to ease the pressure on the banking system, Kochhar told PTI in an interview.
"The improvement in sentiment during the last few months and the continued FII flows in both debt and equity lead us to believe that the IDFs will be successful in raising offshore funds," said Kochhar, who was here yesterday for the launch of India Infradebt Ltd, the country's first IDF under NBFC model.
Infradebt has been set up with an equity capital of Rs 300 crore (about $55 million) with four major financial institutions as its promoters. While, ICICI group holds the highest stake at 31%, other promoters are Bank of Baroda (30%), Citi (29%) and LIC (10%).
The Fund can provide funding to the tune of up to $2 billion after roping in debt investors from India and abroad.
On the expected contribution from domestic and foreign investors in the overall targeted size of $2 billion, Kochhar said, "Infradebt is looking to raise half the liabilities from the domestic market and the other half from foreign sources".
Asked whether she was optimistic of foreign investors' interest in Infradebt and other such funds despite concerns over the country's widening trade deficit and continuing FDI barriers, Kochhar exuded confidence in success of IDFs in raising offshore funds.
"Further, since IDF would be lending to projects which have completed one year of operations after implementation, the risk profile will be substantially lower, thereby attracting huge investor interest. Also, the continued low interest environment in the offshore markets coupled with the ample global liquidity will also support fund raising by IDFs," she said.
India has set a target of $1 trillion towards infrastructure spending during the 12th five-year plan period (2012-17).
Of this, 50% of the amount is proposed to be invested by the private sector and an estimated $350 billion is expected to come through debt contribution.
"While the target ($1 trillion) may appear large, we should remember that a few years ago we would have thought that spending $500 billion would be impossible and we have substantially achieved that level in the 11th plan period. So, I think we need to set aspirational targets and work towards achieving them with the right policy and administrative measures," Kochhar said.
When asked whether IDFs can ease the pressure on banking system, which has been the main source of funding for infrastructure sector, Kochhar said, "Worldwide pension funds and insurance companies which have access to long term funds finance most of the infrastructure requirements."
"In India, it is the banking sector, which has mostly short term funds which finances the bulk of infrastructure assets. The IDFs are expected to correct this gradually by channelising long term funds from pension funds and insurance companies, both domestic and overseas. Over a period of time, the contribution of IDFs is expected to increase," she added.
On the expected role of IDFs in channelising domestic savings and global investments for infrastructure funding, Kochhar said the Finance Minister has put in place an innovative structure in the form of IDFs.
"While the concept is new, we are confident that Infradebt and other IDFs will emerge as a new additional channel for funding infrastructure. We believe that an appropriate mix of incentives and the right structuring leading to a low risk operating model, together with strong support from the Government will lead to the success of the IDF NBFC model," she added.
Kochhar said that India presents a huge opportunity for physical infrastructure such as power, roads, airports and urban infrastructure.
"Thus, infrastructure investments in India would be inherently viable given the demand-supply situation. In recent years we have demonstrated the ability to build infrastructure on a large scale. We need to ensure that there is an appropriate policy and administrative environment to make existing investments fully productive and encourage additional investment.
"Funding will be available, especially with the creation of additional funding channels like IDFs to channelise long term resources into the infrastructure sector," she added.
NBFC-model IDFs are currently allowed only to invest in Public Private Partnership projects having completed one year of commercial operations.
"The existing framework for IDF NBFCs will naturally evolve once there is a track record, but there is another structure of IDFs through the mutual fund route which can fund such projects even today," Kochhar said.