Govt spanner in IIFCL UK Plan to lend more to private sector

NEW DELHI: The government is not in favour of allowing state-run IIFCL’s UK-based subsidiary to lend more to the private sector.

Indian Infrastructure Finance Co had submitted a proposal seeking to double IIFCL UK’s lending to private infrastructure projects to two-fifth of its loan portfolio. The UK-based subsidiary’s mandate is to finance equipment purchases of infrastructure firms, 80% of which have to be public-private partnerships.

“The IIFCL board is yet to approve the proposal. Further, 90% of lending by IIFC UK is to the power sector. It should diversify its portfolio before the limit is increased,” said a finance ministry official.

IIFCL chairman SK Goel had argued that increasing the limit would help IIFCL target sectors where there are not many PPP projects. IIFC UK sanctions in the current year have risen 159% over last year.

“Besides, many projects in the power sector are being financed by Chinese banks because of our lending cap. This is a concern as these projects will be dependent on Chinese funding,” he said. The government does not agree. It says IIFCL’s main focus is to fund PPP projects and there are other state-run firms that can take care of power financing.

“The definition of infrastructure is being reworked. Some more sectors will be added and IIFCL will have enough scope to lend,” the official said. The government has initiated the process of broadening the definition of ‘infrastructure’.

Finance Minister Pranab Mukherjee in his budget speech had also proposed to include cold chains, post harvest storage facilities and capital investment in fertiliser production as infrastructure sub-sectors.

The infrastructure finance firm has a credit line of $5 billion from the Reserve Bank and has so far sanctioned $2.46 billion. Majority of the lending done by IIFC UK is in power followed by the railways and ports.

“Given IIFCL’s credit line, the current exposure may not be high but if the trend continues and if there is some trouble in the power sector, IIFCL may find its non-performing assets rising,” said an executive director with a state-run bank.

The Twelfth Five-Year Plan has envisaged an investment of $1 trillion to build the country’s infrastructure, half of which it expected to come from the private sector.