The Deepak Parekh committee on infrastructure financing has called for re-inventing India Infrastructure Finance Corporation Ltd by making it a guarantor for projects and providing loans for a period of over 20 years. IIFCL Chairman S K Goel says the recommendations are premature, as the state-run lender's role as a guarantor for long-term funds would depend on the success of the Credit Enhancement Scheme and Infrastructure Debt Fund. Excerpts of an interview with Vrishti Beniwal:
How do you find the Parekh panel recommendations?
A note was placed by the Planning Commission suggesting that over a period of time, IIFCL should take a very different role of the guarantor. In our new product on credit enhancement, we are going to be a guarantor for raising the bond market.
The second issue was about takeout finance. They said it should be done through the Infrastructure Debt Fund (IDF) route. Our contention was the product was yet to be launched and we'd come to know only after two years whether it was successful or not. So, both suggestions are premature.
We should wait for two to three years before these products are launched. That was agreed in the meeting but since the note was already placed before the committee, it formed part of the recommendations.
Now, it is for the appropriate authority to consider these suggestions.
Do you agree IIFCL should be lending for a tenure of 20 years or more?
That is for the guarantee. They are saying it should be available for a long tenure. I have to test the product first, to see whether there is enough market for a 20-year bond. So far, even 10-year bonds find it difficult to get an investor. My wishful list could be very long but it should be practical, too.
What is the update on your plan to have an IDF?
All those who wanted to go for IDFs are still struggling with regulators. Our proposal is with Sebi (the Securities and Exchange Board of India) as we want to start an IDF through the mutual fund route. We are ready with it. In-principle approval is already there and as soon as I get final approval, we will launch it. The initial investment will be $1 billion.
The infrastructure sector requires $1 trillion in the next five years. The government has taken some steps in recent weeks. What else needs to be done?
Dependency on the banking sector has to come down because banks are going to reach their exposure limits.
There is an urgent need to have an infrastructure bond market and to initiate that process, we are coming with a credit enhancement scheme. The first issue should be launched near the 20th of this month. After that, we have many issues lined up. Once we get the nerve of the market, we would be able to say whether the infrastructure bond market is really going to be successful.
What are your capital raising plans for this year?
The Reserve Bank of India has given a special dispensation to IIFCL. As against the 15 per cent capital adequacy for other non-bank finance companies, they have reduced the requirement for us to 12 per cent, in view of our government support. So, we might need around Rs 400 crore (Rs 4 billion) for next year. This year, we are comfortable. Our reserves are also adding and have almost reached a figure equal to our capital.
When do you plan to come up with your Rs 10,000-crore bond issue, announced in the last Budget?
We are waiting for the government notification. Once that is issued, within a month's time we will be able to raise the amount. What we have to see is whether we want to raise the entire Rs 10,000 crore (Rs 100 billion) in one go or in two tranches of Rs 5,000 crore (Rs 50 billion) each. We might go for a green-shoe (over-allotment) option.
How do your sanctions and disbursements look?
Between April and September, we have been able to disburse Rs 5,400 crore (Rs 54 billion) for 17 projects. A lot of disbursement is out of earlier sanctions. Our target for this year is Rs 10,000 crore (Rs 100 billion). We have sanctioned 17 projects, of Rs 9,000 crore (Rs 90 billion).
Initially, there were hiccups in the takeout financing scheme. How is it doing now?
It is quite a successful product. From January (when it got operationalised) to September, we achieved the target we were aiming to achieve by March 2013.