The Union Government is planning to launch Rs 500-crore worth credit enhancement fund in July to boost infrastructure financing.
The move aims to facilitate infrastructure investments by insurance and pension funds. The fund was first proposed in the financial budget for fiscal year 2016-17.
The information was shared by Kumar Vinay Pratap, joint secretary (infrastructure, policy and finance), Ministry of Finance while speaking at an event on private sector participation in resource mobilisation organised by the Finance Ministry.
• The dedicated fund is expected to operate as a non-banking financial company (NBFC) with 49 percent government stake.
• It is expected to get support from investors including India Infrastructure Finance Company Ltd (IIFCL) and Life Insurance Corporation (LIC) of India.
• The China-based Asian Infrastructure Investment Bank (AIIB) is also expected to infuse equity to pick up 10 percent of its stake.
• The initial corpus of the fund, to be sponsored by IIFCL, will be Rs 500 crore. IIFCL will also hold a 22.5 per cent stake in the NBFC.
• The state-run SBI, Bank of Baroda and LIC will also have stakes in the firm.
Why is credit enhancement needed for infrastructure financing?
The bank lending to the infrastructure segment has reportedly slowed down in the past few years and the annual growth rates fell to 3 percent between FY14-17, as against 43 percent from FY 2000-2013.
The non-performing assets (NPAs) from the segment also rose to 9 per cent in FY17, from 3 percent in FY13.
Currently, only $110 billion is being invested in infrastructure, as against the required $200 billion, which has led many analysts to classify India as an infrastructure deficit country.
Finance Minister Arun Jaitley had in his 2016-17 Budget speech announced that the Rs 500-crore credit enhancement fund to be set up to help raise credit rating of bonds floated by infrastructure companies.
Who: Union Government
When: July 2018