NaBFID to roll out take-out financing for banks
The National Bank for Infrastructure and Development Finance (NaBFID) plans to raise funds to help commercial banks overcome asset-liability mismatches in infrastructure financing.
Moreover, to encourage infrastructure companies to raise resources through bonds, the Development Finance Corporation (DFI) is providing credit enhancement to boost the rating of these bonds and inspire investor confidence.
Eliminate risks
“In the infrastructure sector, receiving financing will be a very important element in the future. Earlier, there were reservations about financing infrastructure projects as some things went wrong. But today the ecosystem has fully developed. The government has taken all steps to remove the risks Infrastructure projects, be it land acquisition, environmental clearance, better franchise agreements, better counterparties like NHAI, Power Grid, etc. Business line.
Ray noted that all the enablers have been put in place over the past seven years to ensure that financing infrastructure is not as risky as it used to be.
Referring to the asset-liability mismatch facing commercial banks in financing infrastructure, the NaBFID Chairman emphasized that while banks provide long-term loans for infrastructure projects, their liabilities are relatively short-term. The maturity of assets (infrastructure loans) is much longer than the maturity of liabilities.
Therefore, infrastructure financing must be sufficiently long-term. NaBFID comes here. When it comes to financing, the concept is that the commercial banks will participate in the initial phase of the infrastructure project with an agreement that at the end of the fourth or fifth year, the loan will be received by NaBFID or some other. institutions.
The project loan can be for 20 years, but the banks will exit at the end of five years. So, this is where receiving financing is going to gain importance. As a product, it is already available. “But the ecosystem wasn’t conducive to coming to the fore,” Ray said.
He added that now is the time to develop the product, possibly with appropriately adjusted regulation, so that commercial banks are more comfortable lending to the infrastructure sector.
operating assets
He stressed that operational infrastructure assets must necessarily be funded by the bond markets.
This is also why the ecosystem is now mature. We’ve seen the success of NHAI’s bond issuance of the InvIT Infrastructure Investment Fund…and retail investors’ gains on these investments are much higher than in government securities or bank deposits.
We want infrastructure companies to issue bonds on NHAI’s InvIT lines. Now, these companies may put their assets into InVIT and issue bonds. They should be empowered to issue bonds. So, credit enhancement as a product has to evolve.
Credit enhancement
He noted that although the Reserve Bank of India (RBI) issued guidelines on “Enhancing Partial Credit for Corporate Bonds” in 2015, the product did not take off because issues around capital and other requirements had to be amended to make it viable.
“Now, if infrastructure companies with operating assets are to raise resources through bonds, they need a minimum rating of ‘A’ or ‘AA+.’ Most of them don’t get that rating.
“With a credit boost, their rating will improve. NaBFID can help with that. So, we’re also working on that product. Maybe, in six months to one year, you’ll see NaBFID come out with credit boost and borrow financing,” Ray said.
NaBFID was launched on December 29, 2022. It was created by an Act of Parliament to support the development of long-term non-recourse infrastructure finance in India, including the development of bond and derivative markets for infrastructure finance over the infrastructure finance business.
DFI, which has so far disbursed around Rs. 15,000 crore for infrastructure projects, expects to end FY24 with loan penalties of INR 1 crore and payments of about Rs. 60,000 crore.