The government has decided to invest Rs 800-1,000 crore equity in India Infrastructure Finance Company Ltd (IIFCL) for strengthening its lending capacity to help fund highway and other important projects.
Recently, the financial sector has witnessed the reluctance of private and public sectors towards infrastructure projects. Axis Bank and ICICI Bank along with public sector players including the State Bank of India have also been hesitant to invest in this sector.
IIFCL has been reducing lending activities, considering proclaimed losses and reached exposure caps, but is now ready to shift to achieve revenue of sorts. This approach of the company is also being adapted by the other remaining players. However, the timing of the infusion is uncertain since the Centre is planning to rein in fiscal deficit even as the revenue flow is unsteady and the government has announced tax cuts to improve the economy.
The boost in capital is being planned at a time when the Union is eyeing to stimulate investment in order to accelerate economic growth. This move further indicates that the government will be restricting itself to move forward with the merger of IIFCL and other financial players such as IFCI.
IIFCL is still unlikely to be assigned to provide credit augmentation to infrastructure projects. However, finance minister Nirmala Sitharaman had introduced a tool to provide affirmation of compensation to help a bond issuer to improve ratings on its bond with infrastructure activities like airport or road developer or a power company.
The department of economic affairs which is heading this matter is yet to finalise the scheme structure but is planning to establish a new financial institution for the infrastructural purposes. This step taken by the government could also help in facilitating the process of boosting the country’s economy.