IIFCL to get more operational flexibility

The Union Cabinet has approved a proposal to give more operational flexibility to India Infrastructure Finance Company Ltd, a special purpose vehicle (SPV) of the government to finance infrastructure projects.

"The Cabinet recently approved changes in the scheme of financing of IIFCL," an official source said.

The amendments in scheme of financing is likely to be notified shortly.

The changes are aimed at removing certain irritants in the existing scheme of IIFCL financing related to lead bank's role in loan sanction, disbursement, recovery and sharing of risk.

Under the revised scheme, it will not be the responsibility of the lead bank to recover IIFCL exposure to any project. This was a big hindrance in roping in banks to finance projects as it was a cost for them and sought to pass it on to IIFCL.

Lead bank refers to the financial institution that is funding 25 per cent of the total debt of an infrastructure project. This definition is understood to have been done away with. Instead it has been decided that IIFCL exposure shall not exceed the share of the lead bank in a project.

Banks' resources being short-term in nature, they were opposed to the definition of lead bank.

Under current guidelines, IIFCL exposure is limited to 20 per cent of the total project cost (debt and equity).

IIFCL, which encourages public-private partnership projects, only gets back its money after 80 per cent of the project debt of lead bank and other financiers are recovered. This is understood to have been amended to make repayment terms of IIFCL loans at par with that of lead bank and other co-financiers.

IIFCL, which is financing competitively bid projects only, will be able to finance non-competitive infrastructure projects also.

IIFCL will also be able to lend for tenures of 12 years and more to infrastructure projects that have average gestation period of 12-15 years. At the moment, IIFCL loans have an average tenor of 10-years.