Views of P.R. Jaishankar

“IIFCL has achieved a fivefold increase in profits”

The road ahead for infrastructure financing in India looks promising despite the macroeconomic headwinds. A number of alternative and long-term funding avenues are being explored in addition to traditional sources. In an interview with Indian Infrastructure, P.R. Jaishankar, Managing Director, India Infrastructure Finance Company Limited (IIFCL), talks about the company’s recent initiatives and priority areas, future requirements for infrastructure financing, potential strategies and solutions for greenfield financing as well as asset restructuring and refinancing, and the policy and regulatory measures needed for long-term financing…

What have been the key initiatives of IIFCL in 2021?

The year 2021 has been a critical one. We needed to ensure that our fundamentals are on track and asset quality improves. The company was quite successful in bringing the non-performing assets (NPAs) down from 19.7 per cent as on March 2020 to 13.9 per cent as on March 2021. Further, net NPAs declined from about 10 per cent to 5.3 per cent, and provision-to-coverage ratio improved from about 50 per cent to about 62 per cent over the same period.

Apart from this, we had to ensure that the organisation became profitable again. IIFCL has achieved a fivefold increase in profits, which stood at Rs 2.85 billion in 2021 as against Rs 510 million in 2020. The consolidated segment also became profitable by posting a profit after tax (PAT) of about Rs 3.25 billion this year. The company also recorded the highest-ever sanctions and disbursements in the year 2021 since its inception.

Moreover, the company tried to leverage the opportunities provided by the National Hi­gh­ways Authority of India and other concessioning authorities. We continued to provide support to the National Monetisation Pipeline (NMP), Bharatmala Pariyojana and renewable energy projects. IIFCL has also started focusing on healthcare and the city gas sector.

IIFCL has put in place an online project monitoring system for real-time monitoring using drone technology, artificial intelligence, etc. We have also embarked on an integrated information technology solution to reduce the lead time and enhance overall customer satisfaction. We have also enhanced our focus on research and advisory for policy and feedback.

What is the current lending portfolio?

The current lending as per IIFCL’s stand-alone portfolio is about a Rs 378 billion loan book as against Rs 570 billion asset base. The consolidated lending stands at Rs 500 billion as against Rs 703 billion asset base. While IIFCL has been largely concentrating on the road and en­er­gy sectors, it has increased focus on other sectors such as airports, ports and renewable energy. We have also increased the share of refinanced projects. As a result, the asset portfolio com­pris­es almost 35 per cent of refinance, 32 per cent roads and 31 per cent energy assets.

What will be the infrastructure financing requirements over the next 5-10 years?

The National Infrastructure Pipeline (NIP) envi­sages a total investment of Rs 110 trillion in infrastructure projects between 2019-20 and 2024-25.  From a sustainability perspective, the NMP is a strong pillar to support NIP. Going forward, Gati Shakti will be a crucial factor, which is essential to get a flow of information, undertake digitisation and ensure smooth processing of the NIP and im­plementation of the NMP.

Over the past few years, infrastructure projects have increased in size and complexities. However, net worth of banks, who have been the key financiers of infrastructure sector, has not kept pace with the increased and long-term funding requirements of the new age infrastructure projects. We need to create an environment that promotes long-term financing for infrastructure. We have to adopt a system that enables relaying of assets from one set of institutions to another. The rescheduling of cash flo­ws of standard assets and passing them to other institutions is not really incentivised in a re­gu­latory framework. So, we need to look at the review of financial regulation to incentivise the process. If this happens, it will become much easier and smoother to operate infrastructure financing in a way that yields the best results. It will also bring in fundamental efficiencies and bring down user charges by reducing project expenses.

In terms of greenfield financing, how do you think we can make it easier?

The traditional infrastructure financing institutions are the ones with the necessary skills and capacities to finance greenfields. For greenfield assets, these institutions will continue to play a critical role, complemented by NBFC-IFCs such as IIFCL, PFC, etc. There needs to be a new financial architecture wherein banks fund an infrastructure project upto construction phase (for five to seven years) and subsequent financing is routed through long-term development finance institutions and/or bond market. We now have a reasonably well-developed brownfield environment, with infrastructure investment trusts, foreign investor involvement, and many others.

With regard to private sector participation, concession agreements are being prepared to ensure equitable distribution of risks for enhancing private sector role in infrastructure development.

In this environment, one can say that the infrastructure sector is maturing. Various activities are under way in key infrastructure sub-sect­ors and ministries. For instance, in the roads se­ctor, the Ministry of Road Trans­po­rt ­and­ High­ways is leading the pack with its reformative progra­m­mes. There has been considerable private sector interest in hybrid annuity model and toll-operate-transfer model. How­ever, supply-si­de interventions to reclaim the grassroots level would take time. As a result, greenfield financing is highly dependent on the confidence of private sector investors and len­ders. To proceed, one must consider a broader long-term approach to corr­oborate the efforts being made by various ministries.

IIFCL has been advocating an infrastructure law, which would take into account the in­terests of all system stakeholders and institutionalise this type of programme. For private in­ves­tors and other stakeholders, confidence would be restored if there is a law that is consi­derably more protective in nature. Thus, in or­der to restore private investor trust, a more permanent policy must be considered in the system, which can only be accomplished through law. Canada, some states of the US as well as a few European countries already have laws in place. India’s prominence in PPP initiatives ne­c­essitates protecting interest of stakeholders via a law.

Are these laws different from some of the laws some other countries have?

What I envision in the law would encompass the broad gamut of issues that affect the system’s stakeholders, including the concession authority, the concessionaire, lenders, other service providers, as well as a mechanism for resolving disputes that arise as a result of the long duration of infrastructure pro­jects. Infrastructure projects are also generational in nature sin­ce they transfer from one generation to the next. These infrastructure projects might be overseen by four to five different administrati­ons. Looking at it from a very long-term persp­ective, we need to resolve these issues, but we also need a system in place to properly distribute risks to ensure the implementation of the programme as well as the enforcement of the terms and conditions of the contract in the ma­nner that is agreed upon. These are all critical components for ensuring an excellent level of governance and, concurrently, a high degree of investor confidence in the system. That is when significant investments will begin to flow.

Are there any other policy or regulatory me­a­sures, apart from the aforementioned policies in te­r­­ms of rescheduling and the infrastructure law?

When we examine sectoral policies, we see that each infrastructure sub-sector have some unique requirements, be it roadways, airports, etc. For example, recently, pricing was a key concern for the port sector. However, I believe that the standards for the financial sector are universally applicable to all other infrastructure sectors. A slew of initiatives has been taken to improve liquidity and depth of the bond market. This has resulted in a number of infrastructure bond issuances, whi­ch are also traded. In addition, there is a need to expand the investor base. Pre­viously, only AAA-rated issuances were traded. However, we are increasingly seeing AA- and -A rated issuances being exchan­ged as well. This is a very positive sign of the bond market’s expansion into infrastructure papers. Credit enhancement is another area that has a lot of potential. Government of India had proposed a separate entity to address this specialised requirement. I believe such an entity would add a lot of value to the pro­cess, as it will enable the majority of lower-rated issuan­ces to access the bond market.

What are the key priorities for IIFCL for the next one to two years?

At IIFCL, we have prioritised doing the right thing and doing it repeatedly.

IIFCL plans to aggressively capture an increased market share by keeping its pricing competitive and lowering down base rate to attract more business and further strengthen its portfolio.

IIFCL is now in the process of bringing in a market-oriented dynamism in all its activities, with an improved credit policy, segmented risk-based pricing, enhanced efforts for recovery, an active treasury management and digitisation of monitoring of projects for ensuring progress linked disbursements in projects This will help ensure greater transparency, efficiency, integration and streng­thening of risk management. It will also help get the pricing policy right and in sync with market conditions. Fur­th­ermore, because this is a continuous process, we are looking to expand our skill sets in specialised areas. Simultane­ously, we intend to ex­pa­nd our footprint beyond conventional sectors by foraying into new sectors. Thus, I believe that is the stance we are considering, but we also want to make a difference in infrastructure lending, and not just be another lender. Since asset growth is critical, we would like to ex­pand our assets to a specific threshold, after which we would like to focus on increasing our returns on equity and assets.

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