Union Cabinet likely to consider Credit Guarantee Enhancement Corporation soon

The cabinet is likely to take up a proposal for setting up Credit Guarantee Enhancement Corporation soon which aims to widen the sources of capital for Infrastructure Financing.

As per the report of the Task Force on National Infrastructure Pipeline (NIP), India will require an investment of Rs. 111 lakh crores in infrastructure over the next five years in order to sustain healthy economic growth.

On the successful setup, Credit Guarantee Enhancement Corporation will be one of the tools for mobilizing the funds for infrastructure development, to meet the huge funding requirement.

Key Highlights:

• In the budget for 2019-20, Finance Minister Nirmala Sitharaman had announced that Credit Guarantee Enhancement Corporation will be set up to increase sources of capital for infrastructure financing.

• To facilitate the setting up of the corporation, the Reserve Bank of India has already notified the regulation for a Credit Guarantee Enhancement Corporation.

• Most likely the corporation will be set up as a Non-Banking Financial Company (NBFC) with the partnership of LIC, IIFCL, REC, PEC, and other similar companies.

• The corporation may already have an authorized capital of Rs. 20,000 crores and will also provide a guarantee to bonds issued by the completed projects.

• Credit enhancement will help the issuing companies in improving their bond ratings, as the bond payment is guaranteed to a certain limit.

Need for Infrastructure Financing:

As per the senior official of a Public Sector Financial Firm, the availability of long-term infrastructure financing in India has always been a challenge because of the problems faced by the banks- increasing share of stressed assets and asset-liability mismatch.

In order to support the funding of the National Infrastructure Pipeline of Rs. 111 lakh crores, the Union Finance Minister Nirmala Sitharaman in the budget speech had informed that about Rs. 20,000 crore has already been provided.

The Finance Minister had added that it will cater to equity support to infrastructure finance companies such as IIFCL- India Infrastructure Finance Company Ltd and the subsidiary of the National Investment and Infrastructure Fund (NIIF).