SBI, IDFC start takeout for core projects

SBI would only have to pay an agreed fee ranging from 25 basis points to 100 basis points to IDFC, depending on combination of risk and liquidity support that the original financing bank requires. 8220;For us the takeout agreement will serve as aninsurance for long-term liquidity and risk which we may or may not avail at the end of five years,8221; Verma said, adding that the bank will launch new products including securitisation for financing long-term infrastructure financing in future.

SBI may absorb the guarantee cost, which means the bank8217;s interest rate for infrastructure projects will not go up for long-term financing, he said. Such a format would also help other banks to enter into a similar agreement with IDFC, said Parikh.

The two institutions have agreed to participate in 8220;takeout financing structure8221; inviting banks to participate in infrastructure financing for a specific term and at a preferred risk profile that suits their own 8220;appetite8221; with IDFC standing behind and willing to take out8217; the obligation after a specified period.

This would ensure that the project achieved its goal of long-term funding though the participants in the loan would alter as the project progresses. Due to pressure on capital adequacy ratio CAR,prudential norms and mis-match of assets and liabilities for funding long term projects, banks were finding it difficult to finance infrastructure projects. This new agreement would mitigate the difficulties of banks, he added.

Parekh said Indian banks with their smaller size of operations and deposit growth could now participate in infrastructure financing through the IDFC scheme designed to support risks and liquidity to the participating banks.

SBI has identified three identified projects 8212; Bharati Telenet, Narmada bridge and the Coimbatore bypass 8212; through the takeout financing structure. In the next five years, the SBI8217;s contribution in the scheme might go over Rs 5,000 crore, Verma said.