IDFC offers "comfort letter" for core projects

MUMBAI, May 20: The Infrastructure Developement Finance Corporation (IDFC) is planning to provide "comfort letters" to banks for i...

MUMBAI, May 20: The Infrastructure Developement Finance Corporation (IDFC) is planning to provide "comfort letters" to banks for investment in infrastructure projects and subscription to infrastructure bonds. This is likely to provide a hedge against possible risks associated with such large projects. This was disclosed by IDFC chariman Deepak Parekh at a meeting with RBI governor Bimal Jalan and chiefs of banks and institutions on Wednesday.

The impact of the economic sanctions dominated the meeting. According to top level sources, most of the lines of credit for infrastructure projects have not been withdrawn and these projects will not be affected. "However, fresh projects will get affected as the cost of borrowing will go up since the Exim Bank guarantee will not be there especially for funds raised in the US," a source who attended the meet said.

"Power projects will be affected the most," bankers told the RBI governor. Chiefs of banks and institutions impressed upon Jalan that if need be money canbe raised in the domestic market but at a higher price. But bankers have demanded some sort of guarantee or comfort as they fear asset-liability mismanagement. "We can’t take position beyond five years with short-term money," a chairman of a nationalised bank is reported to have told the governor.

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According to sources, SBI chairman Verma said that he can over a period of five year provide loans up to Rs 15,000 crore while the other banks can provide another Rs 5,000 crore if raising money becomes a problem for infrastructure projects. "We assured that the situation is fairly comfortable and there will not be much of an impact of the sanctions on infrastructure projects. Only new ones will be hurt," a source said.

Except for Chase Manhattan all other Amercian banks are willing to do business with Indian banks, bankers told Jalan. "Citibank and Bank of New York have assured that they will stand by us following the US sanctions. Only Chase has acted adversely. We have decided to take business away from Chaseand do with other American banks," bankers told the RBI governor.

The meeting was attended by RBI deputy governors YV Reddy, SP Talwar, IDBI chairman SH Khan, SBI chairman MS Verma, Bank of Baroda chief K Kannan, Punjab National Bank CMD Rashid Jilani, IDFC managing director D Balaji Rao and IL&FS managing director Ravi Parthasarathy.

The proposal was mooted after bankers said that they would face asset-liablity mismanagement if they got into infrastructure loans in a big way. "Most of our money is short term. We can’t afford to funds projects above five years if some sort of guarantee is not provided," a chairman of a nationalised bank who attended the meet said. The RBI has, however, declined to give any sort of comfort as "it will send out a wrong signal". Sources said that there was little chance for availing of refinance of infrastructure loans from the RBI.

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