Infrastructure Projects may be Insured to Reduce Risks Over Delays

Promoters of infrastructure projects may soon get to buy an insurance to cover interest payments should the project run into delays due to extraneous reasons, a measure government thinks will reduce risks, lower interest rates and step up lending to the sector. The government is working with state-run financial institutions to launch a product on these lines by the end of this year, said a government official aware of the deliberations.

According to the latest data from the Reserve Bank of India credit to infrastructure sector contracted to 3.9% during March-May 2016 compared to the 0.3% increase a year ago.

"The idea is to set up a fund which will provide protection to promoters at a reasonable fee. The insurance part will kick in if the project gets stuck for extraneous reason, and which are beyond the control of the promoter," the official said, requesting not to be identified. Asian Development Bank has evinced interest in setting up such a mechanism, he said. The fund will bear the cost of interest payment during such period, thereby ensuring that the account remains standard in the books of lenders.

The latest finance ministry data show that public sector banks had gross non-performing assets amounting to Rs 4.76 lakh crore in 2015-16, mostly in the infrastructure segment."

Various mechanisms are being deliberated, which include lead bank to participate in the project specific fund. The idea is to tackle the issue before it becomes a nonperforming asset," the official said.

He said the newly formed National Investment and Infrastructure Fund (NIIF) can also play a major role in the initiative. The government has set up NIIF with an initial corpus of Rs 20,000 crore with the aim of attracting investment from both domestic and international sources for in frastructure development in commercially viable projects.