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IIFC UK asked to increase loans to Indian firms

NEW DELHI: The government is pushing the UK arm of infrastructure financing firm India Infrastructure Finance Corporation to expand its portfolio to meet the increasing demand for dollar denominated loans from domestic companies amid a sharp fall in the rupee. 

"In the current scenario, when Indian firms are finding it difficult to manage dollar denominated loans because of 
the fall in the currency, IIFC (UK) can refinance them at cheaper rates for longer tenure," said a senior finance ministry official, who did not wish to be named. 

IIFC (UK) has a credit line of $5 billion from the 
Reserve Bank of India but it has disbursed only $1 billion so far against the gross sanctions of $5.7 billion till March 2013. 

After discussions with the finance ministry, the firm is likely to hold roadshows to use its sanctioned line for early disbursements. 

"We are yet to finalise the dates and venues but we will definitely hold shows in Singapore, Hong Kong and the UK," said an official with IIFCL. 

IIFC (UK) should create more awareness, especially after the government relaxed the lending norms for the infrastructure financing firm, the finance ministry official said. 

The financing firm was set up in 2008 with the objective of lending in foreign currency to infrastructure companies for 
funding their capital equipment imports. The firm plans to disburse about $1 billion in the current fiscal. 

Earlier this year, the government raised the cap to 50% from 20% for the UK-based subsidiary to lend from its corpus to private projects in a financial year. It also allowed the firm to launch a takeout finance scheme on lines of IIFCL. The scheme, aimed at encouraging more lending to the infrastructure sector, allows the lender to sell a part of the loan to a third party after a stipulated period of time. 

"If companies can avail this takeout scheme they can considerably lower their financial debt burden, which will increase the viability of many infrastructure projects," the official said. 

Last year, IIFC (UK) reduced its lending rates on foreign currency loans to infrastructure sector to about LIBOR+ 2% from LIBOR+ 4.5%. 

Experts say the government should take advantage of any financial institution which has such funds available. 

"It helps in reducing the rates of interest and ensures that companies do not get burdened by additional debts," said Amit Jain, partner at BMR Advisors. 

Business proposals for assistance from IIFC (UK) mainly emanate from sectors such as power, airports and fertiliser that need to import components of capital equipment and machinery.