The Union Cabinet is expected to take up soon a proposal for setting up Credit Guarantee Enhancement Corporation to widen sources of capital for infrastructure financing, sources said.
India requires an investment of whopping Rs 111 lakh crore in infrastructure over the next five years to sustain a healthy economic growth, according to the report of the Task Force on National Infrastructure Pipeline (NIP).
To meet the huge funding requirement, Credit Guarantee Enhancement Corporation would be one of the tools for mobilising funds for infrastructure development, sources said.
Finance Minister Nirmala Sitharaman had announced in the budget for 2019-20 that Credit Guarantee Enhancement Corporation would be set up to increase sources of capital for infrastructure financing.
To facilitate setting up, the RBI has already notified the regulation for a Credit Guarantee Enhancement Corporation.
The Corporation is likely to be set up as a Non-Banking Financial Company (NBFC) with partnership of IIFCL, LIC, PFC, REC and similar other companies, sources said.
A cabinet note for setting up of the proposed corporation is under process, sources added.
The corporation may have an authorised capital of Rs 20,000 crore and will provide guarantee to bonds issued by completed projects.
Credit enhancement helps issuing companies improve their bond ratings, as bond payment is guaranteed to a certain limit. The issuer also gets access to markets at cheaper rates than borrowing from banks.
Availability of long-term infrastructure financing has been a challenge, given the problems faced by banks - asset-liability mismatch and increasing share of stressed assets, a senior official of a public sector financial firm said.
To support the funding of the National Infrastructure Pipeline of Rs 111 lakh crore, the Finance Minister in the Budget speech this year said about Rs 22,000 crore has already been provided.
This would cater for equity support to infrastructure finance companies such as India Infrastructure Finance Company Ltd (IIFCL) and a subsidiary of National Investment and Infrastructure Fund (NIIF), the minister had said.
"They would leverage it, as permissible, to create financing pipeline of more than Rs 1,00,000 crore. This would create a major source of long term debt for infrastructure projects and fulfil a long awaited requirement," Sitharaman had said.