Infrastructure is crucial for India’s economic growth and for achieving the India 2047 vision. The Union Budget 2023-24 of the Government of India has also emphasised on the need for increased spending in the infrastructure sector.

NIIF Infrastructure Finance (NIIF IFL) was incorporated as an Infrastructure Debt Fund (IDF) around 9 years back, to refinance operating infrastructure projects across the country. Over the years, NIIF IFL has refinanced infrastructure projects across multiple sectors and the Company’s in-depth market understanding, rigorous credit appraisal and project monitoring process helped it build a best-in-class zero NPA asset portfolio.

The person at the helm of affairs, Shiva Rajaraman, Chief Executive Officer (CEO), NIIF Infrastructure Finance (NIIF-IFL), has over 26 years of experience in infrastructure finance, innovative and sustainable funding and advisory, in the L&T Group as well as IDFC. He has been the only private sector member of the Inter-Ministerial Steering Committee (IMSC) of the Government of India, set up for the implementation of the National Infrastructure Pipeline (NIP). Among other things, he has also been a member of the Board of Indian Highway Management Company (IHMCL), a company promoted by the National Highways Authority of India (NHAI), which has implemented the electronic tolling solution FASTAG in India.
R Srinivasan from Construction World spoke to Shiva Rajaraman. Excerpts:

How are NIIF and NIIF Infrastructure Finance (NIIF IFL) different?
National Investment and Infrastructure Fund (NIIF), India’s first sovereign wealth fund, was approved in the Union Budget when Arun Jaitley was India’s finance minister. NIIF is owned 49 per cent by the government and 51 per cent by international & domestic financial institutions to ensure the twin objectives of government backing and professional management. The Government of India’s 49 per cent equity investment ensures credibility, financial strength and policy support. NIIF manages 3 equity funds including a Strategic Opportunities Fund (SOF).

NIIF IFL is an infrastructure debt fund (IDF NBFC) registered with RBI. NIIF IFL is majority owned by NIIF’s SOF. NIIF IFL’s mandate, originally recommended by the High Level Committee on Infrastructure Financing (set up by the Government) is to refinance infrastructure projects from the books of banks and other financial institutions, in order to achieve several key strategic objectives.

... We achieved largely all the objectives set by the High Level Committee and the Government, for IDFs. In other words, we took assets off the books of banks and freed up their concentration limits and also helped solve their asset liability mismatch problem. We raised funds only through the issue of long tenor bonds on our liability side, enabling development of the bond market. We extended the tenure of assets on our asset side to make projects more viable and we are in the process of attracting foreign funds into our company (and the country) through the issuance of green and sustainable bonds to foreign institutions.

We have zero non-performing assets (NPAs), which is a rarity in infrastructure financing in India. We were ranked 7th in India in terms of incremental infrastructure funding in FY 2022 and in the same range in FY 2023, despite being only nine years old. The number one ranker in incremental infrastructure financing was State Bank of India and number two was HDFC Bank. The rest among the top 6 are institutions like IREDA, Canara Bank etc, which are government entities. We are however, the only one who has a zero NPA book. Our growth in FY 2023 was roughly 26 per cent as compared to bank growth in infrastructure lending of -0.7 per cent.

We are required to raise funds principally through bonds with minimum 5 year tenor. Although we are also permitted to raise funds through CPs upto 10 per cent of our liabilities, we have generally not used that 10 per cent. Our liabilities consist of 96 or 97 per cent long-term bonds.

Which are the top three sectors in your loan portfolio mix?
We have consciously focussed on green funding. In other words, solar and wind energy generation are our top two sectors. We have also financed projects in power transmission, airports, logistics, etc. We already have a fairly significant portfolio in terms of airports like Hyderabad and Bangalore and logistics, for example – we have financed over Rs 800 crore (Rs 8 billion) for warehousing projects of TVS logistics. In FY 2024, we will be ramping up transportation, principally Public Private Partnership (PPP) projects in roads and ports...

What is your mandate - to provide returns on investment or to fulfil a development mandate?
Our mandate is for both – I have already explained the development mandate. In addition, we also need to earn a return on equity for our Strategic Opportunities Fund of NIIF, who is the majority shareholder and other minority shareholders. We have to provide a return to investors, so we have to be a profitable entity. In FY 2023, we had a profit of Rs 3.25 billion with an average of 44 employees, so that’s an average of Rs 70-80 million per employee net profit. So our productivity, in terms of profitability per employee, is Rs 70-80 million. In comparison, banks generally have Rs 1 - 2 million per employee only, though it may be noted that they are also into retail businesses as well as have lots of branches. We have only one line of business (infrastructure financing), only one office i.e. no branches and monitor all our projects from one office.

Kindly elaborate on environmental, social and good governance (ESG) financing.
Every funding of ours has conditions and covenants relating to environment and social compliance and these conditions are taken as significantly or given as much importance as our commercial conditions. For example, we check various criteria relating to groundwater usage in a project and we have conditions relating to it. We also have conditions relating to certain categories of endangered birds and how bird diverters need to be installed. These are intended to provide the kind of sustainability arising from our ESG mandate. Personnel in our ESG team, who are qualified specifically for ESG, have been recruited from the market with 13 to 15 years of experience. They do site visits, desktop studies and also advise certain clients on how to adhere to IFC norms relating to ESG. So the ESG mandate is taken very seriously. For this reason, we do not have any coal-based IPPs in our portfolio. Are we losing some business because of this? Obviously we are, but we are clear that we have to function as per our mandate.

Green bonds are effective financing instruments for climate infrastructure projects but they come with challenges such as uncertainty of project tenure and lower returns than other comparable financial assets.

What policy measures can help scale up the Green Bonds market?
It is not true that investment in green instruments gives a lower return than investment in other instruments. We have some publicly available data which we compiled from various institutions that has issued green bonds as well those which have invested in green bonds. Our study shows that green funding or investing is good business since it makes commercial and financial sense.

There are certain funds abroad which invest only if the utilisation is for green projects. Such funds have indicated that they are willing to give better commercial terms. As on date, the cost of borrowing through issuance of green bonds, is lower but not substantially lower. Today, it could be five to seven basis points lower than conventional bonds but five to seven basis points also makes commercial sense for us.

As per a recent CRISIL report, the median rating of infrastructure projects in India, has now increased to A+, an excellent rating for infrastructure projects and it makes sense for bond investors to look at it. In fact, the paper issued by CRISIL had a heading which said, “It is time bond investors embraced the infrastructure sector”, since it makes sense from a risk as well as returns and tenor point of view. Roughly 40 per cent of investment in the bond market is in any case through pension, provident and other similar long term funds. Now, if these projects are well rated, and most of these projects are 20-year tenure, it ideally suits the requirement of pension and provident funds in terms of return, in terms of risk and in terms of tenure.

Your views on giving transmission more finance and the same benefits as Green Finance.
In India, traditionally, investments have gone toward generation rather than transmission. There needs to be more investment into transmission in India. We are not averse to funding transmission projects because once a transmission project is constructed and starts operating, it is almost like an annuity. The risk for such projects is extremely low and we are very comfortable refinancing such projects. Green investors should consider this sub-sector also since additional generation also requires additional transmission.

Which industry segments will see maximum growth in 2023 and going forward?
In its notifications, the Ministry of Finance every year adds new sectors to the harmonised definition of infrastructure. Last year, it added data centres and energy storage. Now since these have a very small base, both are expected to see very fast growth in the next one to two years. Solar and wind energy generation is expected to continue to grow extremely fast. The road sector is also expected to continue to grow extremely fast. Though there are not that many public private partnership (PPP) airports in the country, the growth of existing airports like Bengaluru and Hyderabad is expected to continue to see fast growth. So these are the sectors that we are looking at in terms of growth for next year. We will continue to focus on green because that is a mandate from our shareholders. But other sectors too are important. Logistics and warehousing are areas that are extremely important for us. Our relationship with the TVS group is very strong and we are also focussing on other groups.