The Indian Infrastructure Finance Company Limited (IIFCL) has decided to provide refinance to banks for infrastructure lending at an interest rate of 7.85 per cent. However,the company has set a condition that banks will not be allowed to extend loans at an interest rate of over 10.35 per cent to developers. The move is expected to fuel investment of over Rs 25,000 crore and will be used to finance roads,ports and power projects mostly. IIFCl will raise money at 6.85 per cent through the tax free bonds.
The company will complete the process of raising Rs 10,000 crore through tax free bonds by March 18 this year well ahead of the scheduled date of March 31, IIFCL chairman S S Kohli said on Friday while addressing the Confederation of Indian Industry (CII) Construction Summit 2009 in Delhi.
In addition,the companys subsidiary based out of UK has already raised $250 million from the foreign exchange reserves of the Reserve Bank of India (RBI) at London Inter-bank Offered Rate (LIBOR),Kohli added. The money raised through this route would be lent out for purchase of capital equipment from abroad for power projects. At a time when fund inflow through external commercial borrowings (ECBs) is low this is likely to help some projects achieve financial closure. The company has already received 19 proposals for under this of which seven have already been sanctioned. This will facilitate mostly ongoing power projects worth $ one billion, he said.
IIFCL also has the mandate to raise funds through another set of tax free bonds worth Rs 30,000 crore in the next financial year starting April 2009. These funds will be used to finance projects worth Rs 1,00,000 crore or $20 billion,according to the announcement made by the UPA government in the second stimulus package. This is time that developers must come forward keeping in mind the upside that commodity prices such as those of steel have come down significantly and project costs are unlikely to remain high, he said.
Kohli also stressed upon the need to develop a strong corporate bond market in India in order to finance Indias infrastructure development programme. The country needs to spend as much as $500 billion in the next few years in order to meet its needs. As much as 45 per cent of this is slated to go to power and highways development.