The recent churn in the financial sector has seen private players such as ICICI Bank and Axis Bank shun the term loan business, while even public sector players — including State Bank of India — are reluctant to lend to infrastructure projects, which not only have a long-gestation but also carry massive implementation risks.
Having reported losses and reached exposure caps, IIFCL has itself been going slow on lending but is seen to be ready to move into a space where a cleanup of sorts has been taken up and the remaining players have adapted their business model. The timing of the fund infusion is, however, unclear as the Centre is looking to rein in fiscal deficit even as revenue flow is weak and the government has announced tax cuts to boost economic activity, official sources told TOI.
The capital boost is planned at a time when the Centre is looking to spur investment as part of its plan to accelerate economic growth. The move also signals that the government is not going to move ahead with the merger of IIFCL and other financial institutions such as IFCI. Sources said this kind of a marriage would have pulled down IIFCL, given the poor financials of IFCI apart from other complications such as one of the entities being listed.
IIFCL is, however, unlikely to be tasked with the mandate to provide credit enhancement to infrastructure projects — a tool of providing assurance of repayment to help a bond issuer, which could be an airport or road developer or a power company to improve the rating on its bonds. In August, finance minister Nirmala Sitharaman had announced the tool.
Sources said the department of economic affairs, which is piloting the issue is yet to finalise the framework but is looking at setting up a new financial institution for the purpose, adding to the list of existing entities.