In order to facilitate infrastructure investments, which are presently facing major headwinds, Kumar Vinay Pratap, joint secretary (infrastructure, policy and finance), ministry of finance (MoF) has said that the government may launch Rs 500 crore credit enhancement fund in July. In the financial year 2016-17 Budget had first proposed setting up of the fund. The fund will operate as a non-banking financial company (NBFC) with 49% government stake. It has got support from investors such as India Infrastructure Finance Company (IIFCL) and Life Insurance Corporation (LIC) of India.
The joint secretary said more than 70% projects worldwide being implemented on SPV (special purpose vehicle) basis have a credit rating of BBB. The regulatory threshold for pension and insurance funds in India provides that people cannot invest below AA. So, in order to remove this mismatch, India is launching a dedicated fund may be next month.
Besides, Kumar Vinay Pratap stated, at present, the banking system does a bulk of infrastructure project financing and exposes itself to asset liability management (ALM) mismatches and hence, alternatives like raising of money through corporate bonds is necessary. He further added that the present state of the banking system, where all the lenders are saddled with NPAs, will also make it necessary to accommodate alternatives. He also said that in the past few year bank lending to the infra segment has slowed down and the annual growth rates plummeted to 3% between FY14 and FY17, against 43% from FY2000 to FY13. The NPAs from the segment have also ballooned to 9% in FY17, from 3 per cent in FY13.