While finance minister P Chidambaram’s latest Budget has allowed India Infrastructure Finance Company Ltd (IIFCL) to borrow from the funds in the National Small Savings Fund (NSSF), the scheme for funding infrastructure projects by IIFCL is set to undergo some changes in order to make the process less “onerous”. The Department Of Economic Affairs, which has been in consultations with the Planning Commission to amend the IIFCL scheme, has rejected the Commission’s views on the issue of guarantee by the lead bank. The Cabinet note for the suggested amendments prepared by the DEA, however, acknowledges the commission’s differing view. A clause in the existing scheme of IIFCL requires an infrastructure project’s lead bank to guarantee the residual IIFCL loan when 80 per cent of the bank’s own loan has been recovered. After interactions with bankers, IIFCL’s top officials had found that this arrangement was ‘not acceptable.’ At a meeting held in September to discuss the changes needed in IIFCL’s funding scheme under the chairmanship of Planning Commission deputy chairman Montek Singh Ahluwalia, the lead bank guarantee as well as other issues were discussed. Ahluwalia’s adviser Gajendra Haldea defended the existing clause as ‘tenable’ and ‘desirable’ based on his informal discussions with bank officials and experts. Arguing that the clause should not be deleted, Haldea stressed that the primary objective of setting up IIFCL was to provide long tenure debt which was otherwise not available from financial institutions. While it was agreed at the meeting to retain the clause with an additional option to let IIFCL enter tripartite agreements with the lead bank and co-lead bank for projects where lead bank guarantee was not contemplated, the Finance Ministry has subsequently decided to drop the guarantee clause altogether, according to sources. The amendments to the IIFC scheme, that are expected to be taken up by the Cabinet soon, also include a clause that proposes to exempt IIFCL from the regulations applicable to banks and non-banking finance companies.
