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INFRASTRUCTURE FINANCE

(INFRASTRUCTURE CONTINUES TO BE A FOCUS AREA)

India is on the verge of witnessing a sustained investment phase in


infrastructure buildup. With a slew of announcements in housing, road,
port and airport development, we are seemingly on a path of sustained
higher economic growth on the back of improvement in infrastructure
construction in the country.

STORY BEHIND
The government, in its mid-term appraisal of the tenth five-year
plan (2002-07), has revised upwards its infrastructure investment target
from Rs 10,890 bn to around 11,100 bn (US bn) over the next five years.
From a policy perspective, there has been a growing consensus that a
private-public partnership is required to remove difficulties concerning the
development of infrastructure in the country. A substantial chunk of the
abovementioned investment target is likely to come from the private
sector.

BUDGET OVER THE YEARS

BUDGET 2004-2005

Outlay of Rs 53.6 bn towards ?Road Transport and Highways? sector,


including investment in NHAI amounting to Rs 18 bn.

Outlay of Rs 127 bn towards ?Roads and Bridges? sector, excluding


provision for North-Eastern region.

BUDGET 2005-2006

Grant of Rs 14 bn for the National Highway Development


Programme (NHDP) III towards developing four-lane road of 4,000
kms.

Rs. 4.5 bn allocated for the development of roads in the NorthEastern region.

Establishment of SPV to finance infrastructure projects in specified


sectors.

Provision of Rs 15 bn for ?viability gap? funding for infrastructure


projects.

Outlay of Rs 55 bn for the National Urban Renewal Mission, including


a grant component of Rs 16.5 bn.

BUDGET 2006-2007

Increase

in

allocations

for

National

Highway

Development

Programme (NHDP) from Rs 93.2 bn in FY06 to Rs 99.5 bn in FY07.

54%

hike

in

the

budgetary

support

to

the Bharat

Nirman

Programme, amounting to Rs 187 bn.

Increase in corpus of the Rural Infrastructure Development Fund to


Rs 100 bn.

Grant of Rs 46 bn for the National Urban Renewal Mission.

Exemption under Section 10 (23G) of the Income Tax Act removed.


The section exempted income by way of dividend, interest and longterm capital gains arising out of investments made in an enterprise
engaged in the business of developing, maintaining and operating
an infrastructure facility.

Plan allocation for Department of Shipping increased by 37% to Rs


7.4 bn to facilitate investment in National Maritime Development
Programme

BUDGET 2007-2008

12,198km of rural road has been built till December

15,054 villages to be connected by phones till December

Allocated Rs40 billion for rural roads

75 per cent growth rate in electricity generation in April - December

Govt to award two more ultra power projects by July

Imperative to take new steps to up power generation

Rural electrification allocation at 39.83 billion rupee FY 08

Rajiv Gandhi Vidyatikaran Yojana allocation 39.8 billion rupee

National highway plan to get 106.7 billion FY 08

FY 08 APDRP support raised to 8 billion rupees versus 6.5 billion

Energy security high on government agenda

Rs120 billion more earmarked for RIDF for FY 07-08

Separate window for rural roads under RIDF to continue

AVIATION

On the face of it budgetary allocation for the aviation industry for


the fiscal 2007-08 has gone up from Rs2,256.36 crore to Rs12,192.09
crore.
KEY PROPOSALS
Customs duty of 3% imposed on aircrafts; and parts of aircrafts,
imported for use in such aircrafts.
Countervailing duty (CVD) of 16%, and special additional duty of
customs of 4% also imposed on such aircrafts. However, such duties
not applicable to imports by scheduled airline operators and
Government
In 2001, 'Aviation Turbine Fuel sold to turbo-prop aircraft' was
included in the list of declared goods under section 14 of the CST
Act (thereby capping the CST at 4%). The provision amended to

cover all small aircraft with maximum takeoff mass of less than
40,000 kgs operated by scheduled airlines.
Peak rate of customs duty proposed to be reduced from 15% to
12.5%.
Customs duty on Aluminium, Zinc, Copper, stainless steel and other
ferroalloys reduced from 7.5% to 5% in January 2007
IMPACT
Airlines operating smaller air-crafts will be positively impacted with
the reduction in ATF prices which is likely as a result of tax cut on
ATF fuel.
The increase in duty and CVD will not impact the scheduled airline
operators.
The massive hike in outlay has been made primarily to help public
sector carriers Indian and Air India fund their fleet acquisition of 111
aircraft.
The hike will also aid the Airport Authority of India (AAI) develop 35
non-metro and other airports.
ROADS & PORTS

PROPOSALS
Examine recommendations of Deepak Parekh committee of using
forex reserves for funding infrastructure projects.
Higher budgetary support to Bharat Nirman (increase by 31%).
Increase in NHAI Outlay from Rs. 9,945 crore to Rs. 10,667 crore.
Thrust on Public Private Participation (PPP). To set up a revolving
fund with a corpus of Rs.100 crore to quicken project preparation.
Initiatives to reduce Cement Price.
Mutual Funds can open dedicated infrastructure Funds.
IMPACT

The increased thrust on PPP and increased outlay under Bharat


Nirman and NHAI could favourably impact the pace of project
execution.

The

efficacy

of

the

measures

which

have

been

announced to rein in cement prices remains to be seen. The extent


to which long term finances become available for the sector as a
result of the policy pronouncements made is also uncertain at this
stage

Provision for National Highway Development Programme to increase


from Rs.9,945 crore to Rs.10,667 crore; road-cum-rail bridge at
Bogibeel, Assam, over Brahmaputra, to be taken up as a national
project.

OVERVIEW OF RAIL BUDGET 2007-08

CAPACITY OF PASSENGER COACHES INCREASED


The railways have decided to start production of new design
coaches from 2007-08.
The newly designed coaches will have significantly higher capacity
than the previous coaches. The capacity of sleeper coaches has
been increased from 72 to 84, AC Chair Car from 67 to 102, AC 3
Tier from 64 to 81, AC 2 Tier from 46 to 48 and AC 1st from 18 to 22.
The rail coaches designed at Kapurthala factory are convenient and
comfortable for passengers.
2007-08 ANNOUNCED AS YEAR OF CLEANLINESS
300 MORE STATIONS TO GET MODERN FACILITIES AND FACELIFT
Union Minister for Railways, Shri Lalu Prasad announced that the
year 2007-08 will be observed as Cleanliness Year by the Indian
Railways.

Special campaign will be launched to ensure cleanliness and


hygiene at station premises, in passenger trains, railway lines and
waiting rooms etc.
In the previous Rail Budget in 2 years people will observe a
perceptible improvement in the get-up and facilities available at all
major stations. By March 2007, work will be completed at 225 such
stations and the Ministry proposes to provide similar facilities in
another 300 stations this year.
ANNUAL PLAN OUTLAY UP BY 32 PER CENT
The Union Minister for Railways, Shri Lalu Prasad has proposed an
outlay of Rs. 31,000 crore for the Annual Plan 2007-08. The outlay
exceeds plan size for the current year by 32 per cent and would be the
largest Annual Plan for the Railways so far.
The outlays of the Annual Plans over the last three years have
increased by about two and a half times and three-fourths of the Plan
would be sourced from Internal and Extra Budgetary Resources
(IEBR).

Rs. 17,323 i.e. 61 per cent from IEBR.

Extra budgetary resources would include Rs. 5000 crore for


leasing of rolling stock through IRFC.

Loan of Rs. 240 crore to be raised by RVNL.

Investment of Rs. 500 crore under the wagon investment


scheme.
The total budgetary support of Rs. 7611 crore includes

Rs. 1165 crore for SRSF,

Rs. 725 crore from Central Road Fund and

Rs. 5721 crore for the remaining projects.


o The Railway Ministry has sought additional fund of Rs.
2725 crore from Ministry of Finance for the national
projects of Jammu and Kashmir and North Eastern
Region.
These include Udhampur-Srinagar-Baramulla, Jiribam-Imphal

Road (Tupul) and Kumarghat-Agartala new line and LumdingSilchar-Jiribam gauge conversion projects.

Rs 1330 cr for Dedicated freight corridor


Rs 1610 cr for new lines
Rs 2404 cr for gauge conversion
Rs 300 cr for electrification
Rs 722 cr for metropolitian transport

Pre feasibility study on high speed passenger corridors.


Metre gauge to be converted to broad gauges to optimize
revenue.
Suburban services to be improved and modernized.
States willing to share 50% cost to get priority.
RAILWAY RESERVATION AT E-SEVA OF STATE
GOVERNMENTS, POST OFFICES, PETROL PUMPS AND ATMS
OF BANKS
E- ticket charge for sleeper/AC slashed
Train enquiry call centers introduced
Hand held computer terminals for ties
8000 UTS counters & 6000 automatic ticket vending
machines for unreserved travel

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NEW INITIATIVES AIMED AT MAKING UNRESERVED TRAVEL


COMFORTABLE

50% consessions to students appearing in UPSC/SSC exams.


The Railway Ministry has also proposed to give 50 per cent
concession to students appearing in the main written
examination conducted by Union Public Service Commission
and Central Staff Selection Commission. Last year, the
Ministry had announced concessions for unemployed youths
appearing for interviews for jobs in Central and State
Government exams.

Earmarked coaches for vendors in passenger trains.


Vendor coaches will be provided on sections where
transportation

of

milk,

fruit

and

vegetables

through

passenger trains is common. The initiative is aimed at


ensuring safe travel to vendors who at present carry their
milk

cans

and

baskets

hanging

from

the

windows.

RAILWAYS JOINT VENTURE WITH KERALA GOVERNMENT


TO MANUFACTURE PASSENGER COACHES
The Railway Minister Shri Lalu Prasad has announced that a
Joint Venture Company would be set up with the Steel
Industries Kerala Limited, Aleppey, a public sector undertaking
of Government of Kerala to manufacture the passenger
coaches.
NO INCREASE IN PASSENGER FARES
The Union Minister for Railways announced that there would
be no increase in passenger fares during the year 2007-08 for

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any class of travel. A Variable Fare Scheme has been proposed


to be introduced under Dynamic Pricing Policy. Discounts in
fares at the rates indicated below shall be given in various
classes of travel.

Class

Busy Season

Lean Season

AC First

3%

6%

AC 2-Tier

2%

4%

AC-3 Tier (81 berths)

4%

8%

AC-3 Tier (64 berths)

Nil

Nil

AC CC (102 seats)

4%

8%

New Sleeper Coaches (84 4%

4%

berths)
Sleeper Class (72 berths) Nil

Nil

In Popular trains, class-wise discounts indicated above for Busy


Season shall be applicable through out the year. The list of popular trains
shall be notified separately.
Supplementary charges for Superfast Trains for Second Class shall
be reduced from Rs. 10 to Rs. 8.
It has been proposed to introduce Tourist Tickets for any station to
any station in Mumbai Suburban area as a pilot project. The fares for
Second Calls Tourist Tickets shall be as under:

1 Day

Rs. 40.00

3 Day

Rs. 75.00

5 Day

Rs. 90.00

Daily tickets for Non-suburban Second Class Ordinary trains and


Non-superfast Mail/Express trains shall be reduced by Re. 1.00 per

12

passenger.
FREQUENCIES OF 14 TRAINS TO BE INCREASED

The frequency of the following trains will be increased during this


year. This was announced by the Union Railway Minister Shri Lalu Prasad
during his Budget speech in the Parliament.

9311/9312 Indore-Pune Express (from 2 days in a week to 3 days in


a week)

1561/1562 Miraj-Belgaum Passenger (from 6 days in a week to daily)

2149/2150 Pune-Patna Express (from 2 days in a week to 4 days in a


week)

2843/2844 Puri-Ahmedabad Express (from 3 days in a week to 4


days in a week)

2345/2346 Howrah-Guwahati Saraighat Express (from 5 days in a


week to daily)

1563/1564 Miraj-Belgaum Passenger (from 6 days in a week to daily)

2309/2310 New Delhi-Patna Rajdhani Express (from 2 days in a


week to daily)

6603/6604 Thiruvananthapuram-Mangalore Express (from 3 days in


a week to daily)

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2835/2836 Hatia-Yesvantpur Express (from weekly to 2 days)

209/210 Machilipatnam-Tirupati Passenger (from 3 days to daily)

6595/6596 Patna-Bangalore Express (from 2 days in a week to 6


days in a week)

2419/2420 New Delhi-Lucknow Gomti Express (from 6 days in a


week to daily)

6527/6528 Yesvantpur-Kannur Express (from weekly to 3 days in a


week)

6315/6316 Bangalore-Kochuvelli Express (from weekly to 3 days in a


week)

EXTENSION OF RUN OF 23 EXISTING TRAIN ROUTES


The Union Railway Minister, Shri Lalu Prasad announced in his
Budget speech, presented in Lok Sabha today, that the run of the
following existing trains will be extended :

4517/4518 Allahabad-Ambala Cantt. Unchahar Express upto


Chandigarh

207/208 Tirupati-Guntakal Passenger upto Hubli

2315/2316 Sealdah-Ajmer Ananya Express upto Udaipur

2105/2106 Mumbai-Nagpur Vidarbha Express upto Gondia

1103/1104 Agra Cantt.-Nizamuddin Intercity Express upto New Delhi

9165/9166 Ahmedabad-Faizabad Sabarmati Express upto Varanasi

4649/4650 Amritsar-Darbhanga Saryu Yamuna Express upto Jai


Nagar (After Gauge Conversion)

2705/2706 Secunderabad-Vijayawada Express upto Guntur

Shikohabad-Farrukhabad Passenger upto Kasganj (After Gauge


Conversion)

3185/3186 Sealdah-Darbhanga Gangasagar Express upto Jai Nagar


(After Gauge Conversion)

364 Kottayam-Thiruvananthapuram Passenger upto Nagarcoil

571/572 Manduadih-Mau Passenger upto Azamgarh

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209/210 Howrah-Darbhanga Passenger upto Jai Nagar (After Gauge


Conversion)

5037/5038 Kanpur-Farrukhabad Express upto Kasganj (After Gauge


Conversion)

6509/6510 Ajmer-Bangalore Express upto Mysore

4673/4674 Amritsar-Darbhanga Shaheed Express upto Jai Nagar


(After Gauge Conversion)

531A/532A Parli-Latur Passenger upto Osmanabad (After Gauge


Conversion)

2413/2414 Jammu Tawi-Jaipur Express upto Ajmer

5107/5108 Lucknow-Kanpur Utsarg Express upto Kanpur Anwarganj

469/470 Lucknow-Farrukhabad Passenger upto Kasganj (After Gauge


Conversion)

5309/5310 Aishbagh-Bareilly Rohilkhand Express upto Kasganj

2465/2466 Jodhpur-Sawai Madhopur Express upto Indore

Gaya-Kiul Passenger upto Jhajha (1 pair)

SCHEMES
Scheme for Financing Viable Infrastructure Projects through a
Special Purpose Vehicle called the India Infrastructure Finance
Company Limited (IIFCL) (Modified)
1. Whereas the Government of India recognizes that there is a
significant deficit in the availability of physical infrastructure across
different sectors and that this is hindering economic development.
2. Whereas the development of infrastructure requires debt of longer
maturity to supplement the debt funds presently available; and
3. Whereas the Government of India recognizes that such debt is
usually not available because of the following constraints :

15

a. Absence of benchmark rates for raising long term debt from


the market;
b. Asset-liability mismatch of the tenor of debt in case of most
financial institutions; and
c. High cost of long term debt
4. Now, therefore, the Government of India has decided to put into
effect the following scheme for providing financial support to
improve the viability of infrastructure projects.
SHORT TITLE AND EXTENT
1. The Scheme will be called the Scheme for financing Viable
Infrastructure Projects. It will be administered by the Ministry of
Finance through IIFCL.
2. The Scheme will come into force with immediate effect.
DEFINITIONS
In this Scheme unless the context otherwise requires:
1. Empowered Committee means a Committee set up for the purposes
of this Scheme under the chairmanship of Secretary (Economic
Affairs) and including Secretary, Planning commission, Secretary
(Expenditure), Secretary (Financial Sector) and in his absence
Special Secretary / Additional Secretary (Financial Sector) and
Secretary of the line Ministry dealing with the subject.
2. IIFCL means the India Infrastructure Finance Company Ltd (A
company incorporated under the Companies Act, 1956).

16

3. Lead Bank means the Financial Institution (FI) that is funding the
project and is designated as such by the Inter-Institutional Group or
consortium of Financial Institutions provided the risk exposure of
IIFCL is less than that of the lead bank in a project.
4. Long Term Debt means the Debt provided by the IIFCL to the project
company where the average maturity for repayment exceeds 10
years (8.5 years in the case of IIFC(UK) Ltd.).
5. Private Sector Company means a company in which 51% or more of
the subscribed and paid-up equity is owned and controlled by
private entities;
6. Project Company means the company which is implementing the
infrastructure project for which assistance is to be given by the
IIFCL.
7. Project Term means the duration of the contract or concession
agreement for a PPP project;
8. Public Private Partnership (PPP) Project means a project based on a
contract or concession agreement, between a Government or a
statutory entity on the one side and a Private Sector Company on
the other-side, for delivering an infrastructure service on payment of
user charges;
9. Public Sector Company means a company in which 51% or more of
the subscribed and paid-up equity is owned and controlled by the
Central or a State Government, jointly or severally, and includes any
undertaking designated as such by the Department of Public
Enterprises and companies in which majority stake is held by Public
Sector Companies other than financial institutions.

17

10.

Total Project Cost means the lower of the total capital! Cost of

the project:
a. as estimated by the government / statutory entity that owns
the project;
b. as sanctioned by the Lead Bank; and
c. as actually expended
But does not include the cost of land incurred by the government /
statutory entity.
FUNDING OF IIFCL
1. Apart from its equity, the IIFCL shall be funded through long-term
debt raised from the open market. This debt can be any or all of the
following:
a. Rupee

debt

raised

from

the

market

through

suitable

instruments created for the purpose; the IIFCL would ordinarily


raise debt of maturity of 10 years and beyond.
b. Debt from bilateral or multilateral institutions such as the
World Bank and Asian Development Bank.
c. Foreign currency debt, including through external commercial
borrowings raised with prior approval of the Government.
2. The IIFCL would raise funds as and when required, for on lending, in
consultation

with

the

Department

of

Economic

Affairs.

The

magnitude of funds raised would be determined by demand from


viable infrastructure projects.

To the extent of any mismatch

18

between the raising of funds and their disbursement, surplus funds


would be invested in marketable government securities.
3. The borrowings of IIFCL may be guaranteed by the Government of
India. The extent of guarantees to be provided shall be set at the
beginning of each fiscal year by the Ministry of Finance, within the
limits

available

under

the

Fiscal

Responsibility

&

Budget

Management Act. However bonds issued by IIFCL, unless otherwise


directed by Government of India, will not be included against
Statutory Liquidity Ratio requirements. For 2005-06, the extent of
guarantee to be provided by Government of India will be Rs.10,000
crore.
4. The guarantee fee payable by the IIFCL would be 0.25% per annum
on outstanding balances.
5. The facility of guarantees including the terms for guarantee will be
reviewed after 5 years, and its continuation shall be subject to the
outcome of the review.
6. As decided in the First Empowered Committee Meeting held on July
7, 2006;
IIFC may raise funds from domestic institutions namely, banks, FIs
etc, on the basis of the guarantees issued to IIFC. Funds of shorter
duration than ten years may be raised only on account of assetliability management consideration.
ELIGIBILITY
1. The IIFCL shall finance only commercially viable projects. Viable
projects may also include those projects that will become viable
after receiving viability gap funding under a government scheme.

19

2. In order to be eligible for funding under this Scheme, a project shall


meet the following criteria;
a. The project shall be implemented (i.e. developed, financed
and operated for the Project Term) by:
b. A Public Sector Company;
c. A Private Sector Company selected under a PPP initiative; or
d. A Private Sector Company
Provided that the SPV shall assign overriding priority to Private
Public Partnership projects that are implemented by Private Sector
Companies selected through a competitive bidding process.
Provided further that a Private Sector Company, other than
that defined in the first proviso above, would not be eligible for
direct lending by the SPV and may be funded only through the
refinance mode. The total lending for such private projects shall not
exceed 20% of the lending programme of the SPV in any accounting
year. The eligibility for direct lending and / or raising the limit of
20% will be reviewed at the end of one year having regard to the
progress made in funding public sector and PPP infrastructure
projects.
As per the modifications in SIFTI brought out vide GoI, Banking
Division (now DFS) OM No.1/78/2005-IF-1 dated April 23, 2007, para
5.2 (a) of SIFTI stands clarified so as to enable IIFCL to lend directly
to projects set up by private companies subject to the following
conditions:
[i]

The service to be provided by the Infrastructure project is


regulated, or the project is being set up under an MOU
arrangement

with

the

Central

Government,

any

State

Government or a PSU.

20

[ii]

The tenor of IIFCL lending should be larger than that of the


longest tenor commercial debt by at least two years.

[iii] Direct lending plus the refinance business, if any, on account of


this category of borrowers (private sector companies not
selected through a competitive bidding process) should not
exceed 20% of the total lending by IIFCL in any accounting
year. (This limit is the same as the limit currently imposed for
the refinance window.)
[b].

Provided that in case of Railway projects that are not


amendable to operation by a Private Sector Company, the
Empowered Committee may relax the eligibility criterion
relating to operation by such company.

[c].

The project should be from one of the following sectors:


[i].

Road and bridges, railways, seaports, airports, inland


waterways and other transportation projects;

[ii].

Power;

[iii].

Urban transport, water supply, sewage, solid waste


management and other physical infrastructure in urban
areas;

[iv].

Gas pipelines;

[v].

Infrastructure projects in special Economic Zones; and

[vi].

International

convention

centres

and

other

tourism infrastructure projects.

21

Provided that the Empowered Committee may, with approval


of the Finance Minister, add or delete any sector / sub-sectors
from this list.
5.3

Only such projects which are implemented through a Project


Company set up on a non-recourse basis shall be eligible for
financing by IIFCL.
As per the modifications in SIFTI brought out vide GoI, Banking
Division (now DFS) OM No.1/78/2005-IF-1 dated April 23, 2007, para
5.3 of SIFTI is clarified so that only such projects, which are
implemented by the borrower company directly, or though a special
purpose vehicle, on a non-recourse basis, shall be eligible for
financing by IIFCL.
The amendments to Para 5.3 of SIFTI would be subject to
maintaining an escrow account which may be entrusted to any bank
involved in financing of the project and the discretion with regard to
the bank would be that of the Board of Directors of IIFCL
(modification advised by the GoI vide letter No. 1(78)/2005-IF.I
dated April 30, 2007).

5.4

In the event that the IIFCL needs any clarification regarding


eligibility of a project, it may refer the case to the Empowered
Committee for appropriate directions.

6.
6.1

Appraisal & Monitoring by Lead Bank


The Lead Bank shall present its appraisal of the project for the
consideration of the IIFCL. Based on such appraisal, the IIFCL may
consider and approve funding to the extent indicated in Article 7
below.

22

As decided in the fourth meeting of the Empowered committee on


SIFTI held on January 14, 2008, para 6.1 of SIFTI stands modified.
The current practice of sanctioning viable infrastructure projects
appraised

by

the

reputed

appraising

institutions

banks

international financial institutions, was approved. The disbursement


of loans by IIFCL is, however, subject to the appraisal being done by
reputed appraising institutions, the Lead Bank accepting and
adopting the same.

IIFCL shall disburse the loan only after getting

the sanction from the Lead Bank.


6.2

The IIFCL will not normally be required to carry out any


independent appraisal of the project.

6.3

The Lead Bank shall be responsible for regular monitoring and


periodic evaluation of compliance of the project with agreed
milestones and performance levels, particularly for purpose of
disbursement of IIFCL funds. It shall send periodic progress reports
in such form and at such times, as may be prescribed by IIFCL.

7.

Lending Terms

7.1

The IIFCL may fund viable infrastructure projects through the


following modes:
[a].
[b].

Long Term Debt;


Refinance to Banks and Financial Institutions for loans, with
tenor exceeding 10 years, granted by them.

[c].

Any other mode approved by Government from time to

time.
7.2

The Project Company will have the right to choose any of the
modes of lending given above. The terms at which the Project
Company can access Long term Debt shall not be inferior to the
terms at which refinanced debt is available to the Project Company.

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7.3

The total lending by the IIFCL to any Project Company shall not
exceed 20% of the Total Project cost. Loans will be disbursed in
proportion to debt disbursements from financial institutions.

7.4

The rate of interest charged by IIFCL shall be such as to cover


all funding costs including administrative costs and guarantee fee, if
any.

7.5

The IIFCL will release funds to the Lead Bank as and when
due. The Lead Bank/ FI consortium will make disbursements on
behalf of the IIFCL and seek reimbursement which shall be made
within one month of receiving a demand, with necessary particulars,
from the Lead Bank.
In the fourth meeting of the Empowered committee held on January
14, 2008, it was decided that IIFCL may continue to disburse the
loans on a pro-rata basis in terms of the project in-terse
agreement / common loan agreement into the Escrow Account
simultaneously along with the other banks in the consortium
through the RTGS after receiving the Conformation Notice regarding
the draw-down date from the Lead Bank / Lenders Agent appointed
during the inter-institutional meeting (para 5.3 of SIFTI) stands
modified.

7.6

Recovery of loans advanced by IIFCL shall be the responsibility


of the Lead Bank. Recovery of IIFCL loans shall be pari passu with
project debt (other than subordinate debt) till 80% of the project
debt (other than subordinate debt) of the Lead Bank and FI
consortium

(inclusive

of

interest

due)

has

been

recovered.

Thereafter the Lead Bank / FI Consortium would assume the


payment risk as guarantors of the HFC loan from that stage
onwards.

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As per the modifications in SIFTI brought out vide GoI, Banking


Division (now DFS) OM No.1/78/2005-IF-1 dated April 23, 2007,
there is no need to insist on guarantee by the Lead Bank as
provided in Para 7.6 of SIFTI and on tripartite agreement provided in
Paragraph 7.8 of SIFTI, but IIFCL must position on its staff, personnel
with expertise in risk assessment and the regulatory norms that
should govern IIFCL should be defined and brought into operation at
the earliest.
7.7

The charge on project assets shall be pari passu with project debt
(other than subordinate debt) and will continue beyond the tenure
of project debt (other than subordinate debt) till such time the
amounts lent by IIFCL, together with interest and other charges
thereon remain outstanding.

7.8

The IIFCL, the Lead Bank and the Project Company shall enter into
a Tripartite Agreement for the purposes of this scheme. The format
of such Tripartite Agreement shall be prescribed by the Empowered
Committee from time to time.

7.9

In the first two years of operation of the Scheme, projects


meeting the eligibility criteria could be funded on a first-come, first
served basis. In later years, if need arises, funding may be provided
based on an appropriate formula, to be determined by the
Empowered Committee, that balances needs across sectors in a
manner that would broad-base sectoral coverage and avoid preempting funds by a few large projects.

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CONCLUSION
Infrastructure growth is a critical necessity to meet the growth
requirements of the country. Government led infrastructure financing and
execution cannot meet these needs in an optimal manner and there is a
need to engage more investors for meeting these needs. Even though the
Indian financial system has adequate liquidity, the risk aversion of Indian
retail investors, the relatively small capitalisation (compared to the large
quantum and long duration funding needs of infrastructure finance) of
various financial intermediaries requires adoption of innovative financial
structures and revisiting some of the regulations governing the Indian
financial system.
The risk capital required in the infrastructure sector can be
understood as the Explicit Capital brought in as equity by the project
sponsors and the Implicit Risk Capital provided by the project lenders.
Implicit Capital providers seek to manage their risk-return reward by
ensuring availability of adequate Explicit Capital and diversification across
various projects. Given this profile of the Explicit Capital, greater flow of
this risk capital can be ensured by removing the effects of controllable
uncertainties in the policy environment and making available the benefits
of diversification through alternate mechanisms.
New sources of this risk capital can be sourced by providing partial
risk guarantees (in form of First Loss Deficiency Guarantees), formation of
highly capitalized financial intermediaries and encouraging securitization
transactions. In addition to above, various regulatory initiatives and
market reforms are required to enable the commercial banking system to
participate more vigorously in providing infrastructure financing.

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