Credit enhancement fund to guarantee bonds in mkt: IIFCL

The committee has now recommended IIFCL as a guarantor for projects as well as a provider of loans for a period of over 20 years. SK Goel, CMD of IIFCL said the company is starting the credit enhancement facility whereby it is starting the first project which will guarantee bonds in market. However, he feels the product being a new one will take some time to settle in the market. Therefore, it would be essential to wait for approximately two years and then review the products.

According to Goel, 30 to 40% of the infrastructure development funding comes from bond markets in developed countries. But, these funds are being introduced in India for the first time and India will have to follow suit for a similar practice, he explained. He also recognizes the need for a National Investment Board and feels the government's decision to constitute one is an important move.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Can you take us through the Parekh panel recommendations at this point in time and what would be the sort of change in terms of role that is recommended for IIFCL at this point?

A: Deepak Parekh Committee which is known as a high level committee on infrastructure, has two basic recommendations for IIFCL. One is IIFCL should come into guarantee business and two is takeout finance from IIFCL should come from the infrastructure debt funds.

We have given our reply to the government and the government has to take a final decision. We are starting credit enhancement which will be the first project to guarantee bonds in the country.

Our point is it will take some time to establish this product. We cannot move in a hurry, we have to wait for some time, at least for two years before the product is fully settled. Similarly, for takeout finance, our contention is infrastructure debt funds have yet to come to the market. Till these ideas come, we should better continue with what the mandate is.

After two years a review can be made and we do appreciate the recommendations but, timing is the main factor. In our opinion, two years wait is required before we implement these recommendations.

Q: Just the question on the Deepak Parekh committee itself, where do you see the biggest problem, is it that you do not see a market for 20-years paper, what is the biggest problem with the suggestion?

A: We are very much approaching the market and in fact, IIFCL is the first institution which has tried the bonds for 25-30 years quite successfully. But, the market is still very limited because so far the papers are for 10-years but we have to create a demand for 20-year or 25-year papers. I think over a period of time, ultimately infrastructure will require 20-25-year or even 30-year papers.

Q: Won't the term insurance companies buy a 20-year or 15-year bond from you?

A: Yes, the first trial by IIFCL was successful and the main contribution came from some insurance companies and some of the provident funds. There was also contribution from some private sector banks also.