Agreements signed for World Bank loans for IIFCL, Banking Sector and Power Grid Corporation

Agreements signed for World Bank loans for IIFCL, Banking Sector and Power Grid Corporation

Loan Agreements for three projects amounting to US$ 4.2 billion equivalent were signed here today by the representatives from the Government of India, India Infrastructure Finance Co. Ltd (IIFCL), Power Grid Corporation and the World Bank. The details are as under:

Financing of US$ 1.2 billion for IIFCL

        India has made considerable efforts in the recent past to strengthen the institutional framework for infrastructure to ramp up private sector investments in global and domestic conditions. These efforts have resulted in a number of successful PPP - based infrastructure projects.  In 2007, India was the leading destination among low and middle income countries for investment in private infrastructure projects.

        The financing of World Bank for IIFCL is of US$1.2 billion and has two components: 

·         IBRD Loan of $1.195 billion long-term finance to infrastructure projects; and

·         Grant of $ 5 million for capacity building of IIFCL.

        The amount is expected to disburse by September 2015. IBRD loan is a variable spread loan based on six monthly LIBOR. It is loan for duration of 28 years with a grace of 7.5 years.

        This loan from the World Bank will further help bolster the country's achievements in infrastructure area and lay the foundations for stronger growth in the future by making long term financing available to infrastructure projects being done through Public Private Partnerships (PPPs). These PPPs are expected to be in a range of sectors including roads, power, airports, and ports.

Banking Sector Support Loan of US$2 billion

        The Banking Sector Support Loan, an IBRD loan for $2 billion, is part of the series of measures to stimulate the economy by assisting Public Sector Banks in maintaining credit growth to contain the adverse effects of the slow down on employment and poverty, broaden financial inclusion and help production and trade sectors.

        India’s Banking sector is sound, stable and well regulated. The Public Sector Banks are well capitalized with good asset quality and profitability. However, the government has assessed that these Banks will require, to maintain credit expansion and to help contain adverse effects of global slowdown, capital infusion during 2009-2011.The proposed loan will meet this requirement partially through budgetary support to the Government of India.

        The World Bank Loan is a variable spread loan and is based on six monthly LIBOR. It is for duration of 30 years including a grace of 5 years. This will provide capital funds to the public sector banks over the next two years to enable them meet the credit requirement of the economy, including the agriculture sector, MSME sector, weaker sections, etc. The specifics of amount, mode of capitalisation and other terms of capital infusion in individual banks would be decided by the Government in consultation with the banks. 

Fifth Power System Development Project

The total cost of the Fifth Power System Development Project is US $ 1.562 billion out of which US$ 1 billion will be financed by the World Bank.  The objective of the project is to strengthen the transmission system in order to increase reliable power exchange between the regions and States of India.

The project consists of construction of following five transmission schemes:

a.         System strengthening in the Western region for Sasan Ultra Mega Power Plant;

b.         System strengthening in the Northern regions for Sasan and Mundra Ultra Mega Power Plants;

c.         System strengthening in the Western regions for Mundra Ultra Mega Power Plant;

d.         System strengthening in the Southern and Western regions for Krishnapatnam Ultra Mega Power Plant; and

e.         Transmission system for the South-West Interconnection

The project is expected to be completed by June 30, 2015.