Insurance cos, PFs may get a bigger pie in core sectors

NEW DELHI: Insurance companies and provident funds may get to enhance their exposure to infrastructure projects, with the government planning to unveil a slew of measures in Budget 2007 to equip them for such long-term funding.

The finance ministry on Wednesday set up a seven-member panel headed by HDFC chief Deepak Parekh with the mandate to suggest ways to spur private financing of infrastructure. The panel has been given a tight deadline of six weeks to produce an interim report.

Using forex reserves for infrastructure funding is, however, not explicitly a term of reference of the committee. The primary mandate of the panel will be to envision the modalities for “private financing of infrastructure in the medium term”. For this, it will have to, inter alia, recommend ways to ensure availability of “financial equity” for core sector projects from both domestic and foreign investors, as opposed to “strategic equity” that will lead to controlling ownership.

Sources said the fact that panel has been asked to come out with its interim report in six weeks signalled finance minister P Chidambaram’s intent to address some of the issues constraining infrastructure financing in the forthcoming Budget. The committee comprises SBI managing director S Bhattacharya, India Infrastructure Finance Company CMD SS Kohli, Citibank’s India CEO Sanjay Nayar, ICICI Bank deputy MD Nachiket Mor, DSP Merrill Lynch chairman Hemendra Kothari and IDFC MD and CEO Rajiv Lall.

It will identify and estimate the need for different kinds of capital in core projects, namely debt financing, especially long-term, sub-debt financing, equity capital, mezzanine and other quasi-equity financing.

It will assess the present impediments in mobilising long-term debt financing from domestic banking system for infrastructure development. It will recommend steps to improve the availability of long-term debt capital. In this connection, the relevant recommendations of the Patil Committee would be studied afresh, and supplemented, if necessary. Moreover, the committee will recommend changes in the existing regulations and policies to facilitate the availability of non-debt capital. The panel will submit its final report before March 31, 2007.

It may be noted that sitting over new business premium of Rs 28,906 crore in the first seven months of this fiscal, LIC is reportedly mulling increasing long-term investments such as in infrastructure. As for funding core sector projects, banks, with diminishing average maturity of funds, are increasingly facing the prospect of asset-liability mismatch.

That explains the recent alliance between LIC and IDBI for long-term infrastructure funding, with an aim to mutually gain from each other’s strengths. Currently, as per IRDA norms, LIC requires to invest at least 15% of its premium in infrastructure projects. LIC’s investments in infrastructure have largely been under government guarantee.