SBI's $1 bn infra fund in two months

The country's largest lender, State Bank of India (SBI), has decided to join hands with foreign funds to set up a $1 billion infrastructure fund. It expects to launch the fund in the next two months. The money would be raised both in the overseas as well as domestic markets.

An estimated sum of $475 billion is needed for infrastructure development in the next five years to support the growth momentum. The Indian economy grew by 9.4 per cent in 2006-07. A senior SBI official said, "The fund will mainly meet the funding requirements for infrastructure, both in terms of equity and debt. It will be launched in two months. The infrastructure sector has huge requirements and there is no way of funding these projects through the normal bank financing route."

The infrastructure sector accounted for only 7.6 per cent of the non-food credit as on December 22, 2006. The total outstanding loans to the sector stood at Rs 1,24,271 crore on December 22, 2006, a rise of 21.7 per cent over a year earlier. SBI's lending to the infrastructure sector has doubled in about 18 months and is around Rs 20,000 crore currently.

The committee on infrastructure, headed by the Prime Minister, had pegged the investment requirements for airports at Rs 40,000 crore by 2010 and national highways sector and ports at Rs 1,72,000 crore and Rs 50,000 crore, respectively, by 2012.

The private sector is expected to contribute a substantial part of this investment. India has the estimated potential to absorb $150 billion of foreign direct investment (FDI) in the next five years in infrastructure alone.

The country's largest engineering company, Larsen & Toubro (L&T), is also setting up a $1 billion fund to invest in infrastructure projects. L&T plans to raise $500 million in the next two to three months, with the company investing $50 million as seed capital.

Infrastructure Development Finance Company (IDFC), which raised $519 million through the sale of shares to institutional investors overseas earlier this year, has set up a $5 billion infrastructure fund along with New York-based Citigroup and Blackstone.