PremiumIIFCL managing director P.R. Jaishankar shares his views on the road ahead for the institution, as the govt is yet to take a final call on merging IIFCL with the proposed NaBFID, while India needs many DFIs to meet its infrastructure requirements
India Infrastructure Finance Co. Ltd (IIFCL), in its 16th year of operation, has been a leader in providing long-term infrastructure financing, as a wholly-owned government firm that was set up in 2006. However, with the Centre proposing a new development finance institution (DFI) in view of the huge infrastructure deficit in India and investment requirements for the National Infrastructure Pipeline, there are challenges for IIFCL.
P.R. Jaishankar, managing director, IIFCL, in an interview, shares his views on the road ahead for the institution, as the government is yet to take a final call on merging IIFCL with the proposed National Bank for Financing Infrastructure and Development (NaBFID), while India needs many DFIs to meet its infrastructure requirements. Edited excerpts:
How has covid affected infrastructure projects financed by IIFCL? Are there any cost and time overruns expected for such projects?
In the first half of last year, we had to suffer many challenges because of the lockdown and many health issues. We have seen from our portfolio that 80-90 projects suffered because of the covid pandemic. There have been delays but we have not been able to assess the extent of cost overruns yet. Most of the accounts have been regular in their repayments. Some accounts have taken the moratorium benefits and, hence, we have not recognized incomes worth ₹450 crore.
Why do you think the government felt the need for the proposed NaBFID, when IIFCL is already present? Can’t IIFCL be scaled up?
We are already scaled up. As any other financial institution, we are market oriented. Sustainability of any institution will be decided by its profitability and asset quality and that’s what we are focused on. As far as NaBFID is concerned, it is a government initiative.
The kind of financing need that is there for the infrastructure sector is mammoth and there is space for many institutions. With this initiative, the government expects to significantly address most of the issues in the sector.
As far as overall sectoral requirements are concerned, IIFCL will continue to play its role with a degree of sustainability and focus on growth of quality assets as it has been doing in the past.
The government has indicated that it may merge IIFCL with the proposed NaBFID. What is your view on it?
I have no idea about that plan.
Has the government not discussed this matter with IIFCL?
No. These are just speculations in the media.
In an interview with Mint on 3 February, the then economic affairs secretary Tarun Bajaj had said merging both institutions will allow NaBFID to start functioning immediately. Your thoughts?
I have not seen this. That could have been before the enactment of NaBFID. The Act has a different connotation.
Don’t you think that one big umbrella DFI can coordinate and implement infrastructure project financing better?
I don’t know the definition of big. We need to have the right asset sized institutions. We should not be anaemic. At the same time, we should not be obese. We will get diabetes. We should have the right muscles and we should function in a more profitable and more healthy way, build quality assets so that the institution is more sustainable in the long run.
IIFCL has a lot of experience in infrastructure financing. What are the challenges in long-term debt financing of infrastructure projects and how should they be tackled?
There are two or three major areas that we are having issues with. One is long-term finance solutions for infrastructure projects, which is considered an institutional responsibility in India today. However, in India, institutions also source their finance and they are also not being able to give financing beyond 10-12 years. The solution that the world has adopted is to have a relay race kind of a financial system.
One set of beginners finance the project for a definite time period. They pass on the project assets to another set of lenders after that period is over. It goes on like that. The advantage for the developer is that the amortization period gets longer and financial institutions can lend according to their liability profiles. In India, there is a limitation so far as the process is concerned because if one set of institutions has passed on their assets to another set with a different set of terms, it will be considered restructuring and restricting has its own costs and might also lead to non-performing assets classification. All these have to change.
Second, if public-private partnerships have to improve, we need to look at some structural and contractual reforms. One of these is to include lenders as part of the tripartite arrangement in a concession process. It is just not the concession authority. The lenders also have around 70% stake in the projects. This is the way concession agreements world over work. We also need a secondary market mechanism to be put in place as far as the infrastructure sector is concerned. The sector is functioning in a primary sector mode today. That has to be adequately supplemented by a secondary market mechanism.
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