Interview with P.R. Jaishankar: “Infrastructure recovery continues to be the motto of the government”

“Infrastructure recovery continues to be the motto of the government”

P.R. Jaishankar

Long-term infrastructure financing has been on the government’s agenda for a long time, and India Infrastructure Finance Company Limited (IIFCL) has been playing the role of a catalyst in this endeavour. The financial institution has proved to be critical in facilitating the alleviation of the asset-liability mismatch issue of commercial banks through innovative instruments such as takeout financing and refinancing. In an interview with Indian Infrastructure, P.R. Jaishankar, Managing Director, IIFCL and Chairman of the subsidiary companies of IIFCL, shares his perspective on the company’s achievements, current portfolio, future plans, as well as the outlook for infrastructure financing. Excerpts…

What have been the key initiatives and achievements of IIFCL during the past one year?

In the past year, IIFCL has entered into new areas and sectors and has further expanded its product base. The company is now investing in bonds and holding them as loans and ad­van­ces to ensure long-term investments for infrastructure projects. IIFCL is also authorised to lend to infrastructure investment trusts (InvITs) and has initiated lending to the same. IIFCL continues to provide financial support for infrastructure projects, and has recently shifted its focus to projects of national significance, ex­ten­ding financi­al aid to a few of the most pro­mi­nent ongoing pro­jects such as Navi Mumbai International Air­port, Jewar Internatio­nal Air­port, Pune IT City Me­tro and Ganga Express­way.

In the past couple of years, IIFCL has significantly reduced its cost of funds , which has en­abled the firm to maintain low benchmark rates. Due to this, the company has been able to pass on the benefits to infrastructure initiatives. This has been made possible by efficient resour­ce reallocation and active treasury management.

IIFCL has sanctioned around 650 projects (cumulatively) since its inception, with a total project outlay of Rs 11.5 trillion. The cumulative sanctions and disbursements exceed Rs 2 trillion and Rs 1 trillion, respectively. About 25-30 per cent of those have been covered in the past two years. In addition to being more profit-driven, the company’s net worth, total assets, and asset quality have all improved. The asset quality in terms of ratings has also improved significantly. Externally rated A, AA and AAA pro­jects account for about 65 per cent of the portfolio, up from around 35 per cent two to three years ago.

“IIFCL aspires to play an even larger role in India’s infrastructure development in the future by not only being a major lender but also assuring costcompetitiveness in its lending.”

The non-performing assets (NPAs), which were alarmingly high in 2020, have decreased substantially. The net NPA this year was app­roximately 3.6 per cent and dipped below 3 per cent in the first quarter of 2022-23. The capital-to-risk weighted assets ratio remained healthy, while provision coverage grew further during the last year. The company’s subsidi­ari­es have thri­ved as well. IIFCL UK has beco­me profitable over the past two years and was able to obtain its own line of credit, outside of the RBI line.

Further, IIFCL has established its own on­line project monitoring system, a significant de­velopment in the field of infrastructure project monitoring. The financial institution is the first to take this step, and looks forward to the pot­ential of convergence of real-time physical pro­gress and financial progress, helped by ad­vanced tools and technologies in this system. By utilising this online system, delays can be eli­minated, and the organisation can be more pro­mpt and accurate in assessing the requireme­nts of infrastructure projects and meeting them.

There have also been policy advocacy eff­orts aimed at ensuring that the regulations in India are conducive to long-term financing ac­ti­vities. One of them has been the examination and redefinition of the restructuring of the stan­dard project loans. Refinancing of stand­ard in­fra­structure loans must be allo­w­ed without the same being considered as “re­str­ucturing”. This would enable capital relief to banks, and also ensure dispersion of risk ba­sed on return expectation of long-term ins­titutional in­ves­tors such as insurance and pen­sion funds, thereby enhancing the viability of infrastructure projects. IIFCL is also in tal­ks with the Go­v­ernment of India (GoI), state governments, and the Mi­nis­try of Roads and Transport (MoRTH) to im­prove concession terms and en­sure investor confidence for private sector in­vestments. IIFCL aspires to play an even larger role in India’s infrastructure development in the future by not only being a major lender but also assuring cost-competitiveness in its lending.

How has been the operational and financial performance in 2021-22 vis-à-vis 2020-21?

Prior to 2020, annual disbursements averaged between Rs 50 billion and Rs 60 billion. IIFCL sa­n­ctioned around Rs 210 billion and disbursed over Rs 90 billion in 2020-21. In 2021-22, san­ctions amounted to slightly more than Rs 250 billion, while disbursements grew by 10 per cent on a year-over-year basis to more than Rs 100 billion. In the year 2022-23, IIFCL anticipates a 20 per cent rise in sanctions, which is estimated to be roughly Rs 300 billion, as well as an increase in disbursements, with an aim to reach Rs 150 billion.

What is the sectoral mix in terms of lending? Which new sectors are being looked at for funding?

While the roads and power sectors continue to be IIFCL’s priority, participation in these se­ctors has reduced from 40-45 per cent each to ar­ou­nd 25 per cent each over the last two to three years. These have been replaced by airports, re­financing and InvITs. In additi­on, the financial institution has ventured in­to city gas and urban sanitation, and has sanctioned hospital proje­cts. Its role in social infrastructure has been mo­dest. The goal is to di­versify the company’s portfolio and gain exposure to multiple sectors.

What have been the key government initiatives during the past year? What has been the impact on infrastructure financing?

The government has proposed an extremely infrastructure-friendly budget, which has rais­ed investor confidence significantly. In ter­ms of completed projects, the investment climate is far better than it was six to seven years ago. How­ever, greenfield projects are still somewh­at de­la­yed owing to issues with concessions, app­rovals, land acquisitions and dispute settlement.

MoRTH has been particularly proactive in the roads sector, amending concession agree­me­nts and contracts. This has also inspired a nu­mber of significant build-operate-transfer (BOT) projects such as the Ganga Expressway. The hybrid annuity model (HAM) has continued to perform well, and IIFCL has been the segme­nt’s top lender. The resurgence of BOT proje­cts is considered the focal point of infrastructure de­velopment. BOT is anticipated to play an imp­or­t­a­nt role in the development of infrastructure pro­jects in the road sector as well as other sectors.

The reforms initiated by MoRTH and other infrastructure ministries need to be implemented with greater speed and vigour. IIFCL has ad­vocated for regulatory changes in the tripartite public-private partnership concession agreement in order to make projects more bankable and encourage investor confidence.

A few new areas, such as green hydrogen and e-mobility, should be pursued in the future and also be added to the harmonised list of in­frastructure projects.

What is the outlook for the infrastructure financing sector?

To revitalise growth in all areas of the economy, infrastructure recovery continues to be the motto of the government, as aptly demonstrated in the budget. Initiatives such as PM Gati Sh­akti, National Infrastructure Pipeline (NIP) and Bharatmala Pariyojana contribute to the vision. The likely expenditure for 2020-25 is ear­­marked at $1.5 trillion in order to ac­hie­ve sustainable development. The invest­me­­­nts in roads, railways, airports and ports will ne­ce­ssitate financial support from the government. However, as these resources are insufficient, additional BOT projects and private participation are required to supplement government resources.

What are the key focus areas and priorities of IIFCL for the next one to two years?

IIFCL has been focused on providing financial support to different sectors. The past two years have been about consolidation and stabilisation for the company. It now intends to attain greater levels of growth through internal accruals. Instead of focusing on a more rapid increa­se in asset size, IIFCL is aiming for a higher net worth and utilising internal accruals to spur further growth in the years to come.