With Indian economy moving on to a high growth trajectory of 8-9 per cent, investments in infrastructure are critical. India Infrastructure Finance Company Ltd (IIFCL) was established in January 2006 to provide long-term financial assistance to various viable infrastructure projects in the country. S. S. Kohli, IIFCL speaks about the company and its plans. Excerpts from the interview
What is the situation in terms of sanctions and disbursements ?
As far as sanctions are concerned, we have done around Rs 21,000 crore and out of this Rs 7,300 crore have already been disbursed. We have sanctioned 125 cases with a total sanction of Rs 21,000 crore of which financial closure has been done in 121 cases and disbursement has been made in 101 cases which roughly amount to Rs 7,300 crore. It should be around Rs 9,000 crore by the end of this fiscal.
A majority of these cases are in the sectors of power and roads. What about other sectors such as irrigation and telecommunication?
The company is constituted under a scheme called SIFTI which is approved by the cabinet. They have mandated certain sectors for us and so irrigation and telecommunication are not in our ambit. We have been mandated mainly for power, highways, ports, airports and urban infrastructure.
What does urban infrastructure comprise? Have you disbursed any type of long-term liabilities?
In urban infrastructure various areas are included such as conversion of waste into energy, movement of bus terminals, slums, rehabilitation etc. There is a fund called the Pooled Municipal Direct Obligation Fund which is allocated by four institutions viz. IIFCL, I&LFS, Canara Bank and IDBI. The others have contributed Rs 250 crore and we have contributed Rs 150 crore while 17 to 18 other banks have also contributed to the fund. So in urban infrastructure they are actually providing loans from this fund to the municipal bodies or local bodies for improvement of urban infrastructure. Individually we have sanctioned one case at Bangalore for conversion of waste into energy.
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The model is reasonably good because waste is to be collected by the state government. They dump the waste at a particular site and they have been given land which is of course made available to them at a rate lower than the market price.
[PAGE BREAK]How does the Bangalore project pay back i.e. is it a feasible business model?
Considering that India needs a huge amount of funds for infrastructure development, what is the role played by IIFCL?
IIFCL was set up with a view to supplement bank resources. The problem with banks is that 81 per cent of the deposits are for less than five years and they have to lend to infrastructure projects for a time frame of over ten years. So there is the problem of availability mismatch. IIFCL has to provide long-term funding and I think our performance of the last 3.5 years indicates that it has proved to be a good model. Out of the 125 cases sanctioned so far, 121 have achieved financial closure and I think this is giving comfort to developers as well as to bankers and the community as a whole.
But don’t you think that the disbursement of Rs 7,000 crore is rather low considering the total need for USD 514 billion as investment in the infrastructure sector?
Actually out of the USD 514 billion, 30 per cent of it has to come in the form of equity and the rest should be long-term debts. Also, funds have to be provided from budgetary resources. If fact, bank funding is required for USD 106 billion in the next five years. Certainly it is again a huge amount but we have to keep this in mind that our one and a half years were lost, primarily because in early 2008 the interest rate had gone haywire and inflation was as high as 12-13 per cent. So there was a very slow off-take of loans. This was followed by the financial downswing of 2009 and the elections. [INSERT_2]
So what kind of numbers have you been looking at for by 2012 in terms of disbursement?
I think by 2012 we will be looking for about Rs 25,000-30,000 crore, including refinance.
How are you these raising funds?
We are raising funds from the domestic market by way of bonds. So far we have raised about Rs 6,100 crore through bonds, Rs 1,000 crore from LAC and Rs 1,500 crore from NSS. ADB has already sanctioned USD 500 million out of which USD 347 mil-lion is available and the balance will be available within the next 3 to 4 months. They have additionally sanctioned USD 700 million for meeting our future requirements. The World Bank has also sanctioned USD 1.2 billion and KFW is also now signing documents for another USD 50 million. Thus, we are sourcing funds from local as well as from foreign institutions.
What about the funds raised from tax-free bonds?
We had raised about Rs 10,000 crore via tax-free bonds but these had to be used for cases to be bid after January 31, 2009 in highways and ports. These bonds are for five years, to be raised again after that period.
So there could be an asset-liability mismatch if you aren’t able to raise funds again?
Yes, in a sense there is a risk factor involved [PAGE BREAK]
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What type of risk management system have you structured to take care of such risks?
We have built up a risk management system in consultation with Crisil and all the accounts have to pass through that system. If the rating is between 1 and 5, we consider the proposal and any rating below that is not taken up for perusal. Special software has been created for this system to work.
What is your average cost of borrowing at this time?
The average cost has been around 8 to 8.5 per cent that too on a floating basis. Multilateral borrowing would have to be below the rate locally available and has to be around LIBOR and so it varies from the market demand and supply scenario.
So what is your yield on advances?
Roughly, I can say, the spread is about 1.25-1.30 per cent and so the yield is about 9.25 to 9.50 per cent. It again varies from case to case.
Do you have any project which has been stalled and become a NPA for the company?
So far the entire interest up to December 2009 has been recovered in all the cases and therefore there is no NPA. We have been following a stringent monitoring system for all the cases to avoid the building up of any NPAs.
Are you looking at consultancy-based revenue considering that you are a finance-based company?
We have appointed consultant to work out a vision for the company for the next 5 to 10 years.
Do you always work on a 100 to 125 basis point margin business?
No, it varies from account to account wherein if the rating is better the rate of interest has to be slightly lower. Also, when we provide finance to a consortium the rate of interest would be decided in consultation with all the members of the consortium.
What is the biggest problem you face with reference to IIFCL?
Presently we are lending purely for contract but in the long run this model may have to be revisited. You can’t strive on income of one area and so I think once the report of receipts is available, we can work out which other model can be adopted for the long run for IIFCL. Even in terms of equity, I think the model has to be discussed with the empowered committee and then needs to be approved by the finance minister and prime minister. So let the report come and only then we can see which model would be good for IIFCL in the long run.
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