IIFCL urges RBI to ease infrastructure loan repayment periods
In a working paper on infrastructure finance submitted recently to the Reserve Bank of India (RBI), state-run IIFCL has urged the country’s top bank to ease repayment periods, so that infrastructure firms can be protected against potential cash blows.
The IIFCL has made a request to the RBI to give the lenders the ability to extend infrastructure project loans with repayments which are spread over the economic life of the projects. For the requested move, the IIFCL has proposed the implementation of a mechanism which the developed markets are using widely.
The mechanism which the IIFCL wants the RBI to implement essentially allows for the breaking down of the debt into an initial construction loan of 4-5 years at a higher interest rate corresponding to the risk involved. Thereafter, there is constant re-financing of the loan every 4 to 5 years; so that – at any point of time – the loans would have an exposure for only 4-5 years in the lenders’ books.
The mechanism proposed by the IIFCL is a noteworthy one, especially given the fact that, currently, the term of a bank loan for infrastructure projects is less than 10-12 years even in cases where a project’s economic life is 30-35 years.
About the proposed mechanism, IIFCL chairman SB Nayar told The Financial Express that the proposal will essentially ensure refinancing by the same lenders or a different set of lenders, with either the same or different terms without attracting restructuring provisions.
IIFCL, Infrastructure, loan repayment periods, mechanism proposed by the IIFCL, Reserve Bank of India
