Traditionally, government has been the sole financier for all infrastructure projects along with the responsibility for implementing projects, operations and their maintenance. Then due to raising needs of infrastructure finance it became recognizable that this method is not enough, neither the best way to execute/finance such mega projects.
Then the government took several attempts for creating an environment for the private players in infrastructure development sector within the country. Generally, infrastructure finance has to be for the infrastructure project which depends on manufacturing projects, expansion and modernization projects that are carried out by infrastructure undertakings in India. Infrastructure finance is considered to be highly capital intensive and entails longer maturity along with higher risk and prolonged real rate of returns.
Institutional finance for Infrastructure sector
Banks and Financial Institutions (FIs) are considered to be open for financing technically feasible, financially viable and bankable projects which are undertaken by public as well as private sector undertakings.
However, before getting finance, it is pre-requisite to take relevant measures as follows:
- Funds provided should be within the overall ceiling limits as described within the prudential exposure norms formed by Reserve Bank of India (RBI) for infrastructure finance.
- Banks or financial institutions must have requisite knowledge for appraising technical viability of the projects which falls under infrastructure financing.
- Providing finance for infrastructure projects through term loans, Banks and financial institutions have to conduct due diligence regarding the viability and bankability for such projects for ensuring efficient utilisation of resources along with the creditworthiness of the projects being financed.
- Banks and finance institutions may lend for special purpose vehicles within the private sector, registered under the Companies Act for undertaking financially viable infrastructure projects and to not act as intermediaries for providing infrastructure finance.
The supply of funds does not seem to be in short supply for infrastructure finance; there exists a need for an extra layer of credit enhancement that can absorb the associated risks with infrastructure financing. It also gives rise to situations for involving intermediaries, instruments and markets which can perform risk functions effectively, maturity and duration transforming to suit the desires of the investors.