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Rediff.com  » Business » Govt readies plan to boost infrastructure sector

Govt readies plan to boost infrastructure sector

October 04, 2012 21:50 IST

With an aim of infusing greater funds into infrastructure sector, the government today cleared a tripartite agreement for setting up of Infrastructure Debt Fund (IDF) to re-finance bank debt to the sector.

The Cabinet Committee on Infrastructure (CCI) today cleared the tripartite agreement for operationalising the IDFs after consultation with the Reserve Bank and other stakeholders, Finance Minister P Chidambaram said.

"There is a felt need for long-term infrastructure funding... One year after commencement date, the IDFs will step in and take over the debts of the banks up to 85 per cent," he said after a meeting of the CCI.

The IDF would be based on a tripartite agreement between developer, lender (bank) and the IDF. The loans by the banks would be refinanced by the IDF so that banks have free funds for more lending.

Infrastructure projects are initially funded by banks or a consortium of banks. Such projects require long-term funding of 20-25 years, while bank funding cannot be of horizon beyond 5-7 years.

"IDFs will provide the long-term funds for the remainder of the life of the project. These frees up bank fund for further lending. This will mean new funds will flow into infrastructure, banks funds will be released one year after commencement of the project.

And, therefore, we hope that more debt funds will be available for infra projects," Chidambaram said.

Rating agency Crisil said the immediate opportunity for IDF-NBFCs to be nearly Rs 20,000 crore (Rs 200 billion).

The IDF, which was proposed in the Union Budget for 2011-12 fiscal, is aimed at accelerating and enhancing flow of long term debt for funding the ambitious programme of infrastructure development in the country.

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