What are the top three sectors in IIFCL’s loan portfolio mix? So far, IIFCL has sanctioned more than 760 projects with a total project outlay of ~Rs.13.8 trillion, the majority of which are PPP projects. As on 31 March 2024, IIFCL’s total sanctions and disbursements on a cumulative basis exceed Rs.2.5 trillion and Rs.1.25 trillion, respectively. The outstanding loan book stands at over Rs.500 billion as on 31 March 2024. IIFCL provides finance to all subsectors in the harmonised infrastructure sector list, like power, ports, roads, airports, railways, urban infrastructure and social infrastructure. However, roads, power and airports are the three prominent sectors in IIFCL’s loan portfolio mix. About 34 per cent of our portfolio is in the road sector and 30 per cent is in the power sector. In roads, we have sanctioned about Rs.810 billion, contributing to around 22 per cent of India’s National Highway capacity. We have been part of signature projects such as the Bandra-Worli Sea Link, Delhi-Meerut Expressway, Mumbai-Nagpur Expressway, Hyderabad Outer Ring Road and Ganga Expressway. Further, we are poised to significantly enhance our contribution to this sector. With respect to power, IIFCL has contributed about 21 per cent to India’s installed energy capacity, with sanctions to the tune of about Rs.800 billion, and has been a part of projects like JSW Energy (Kutehr), Avaada Sunshine, Energy Private (ASEPL) and SJVN Green Energy. We have also focused on projects in the renewable energy sector. Further, IIFCL has increased its focus on the airports sector with sanctions of about Rs.100 billion and involvement in projects like Noida International Airport, Navi Mumbai International Airport, Visakhapatnam Airport and Goa Airport. Recently, IIFCL has invested in bonds of Delhi, Goa and Hyderabad airports to the tune of Rs.17.41 billion. Please comment on IIFCL’s role in funding the next phase of the infrastructure growth story. India is now on the cusp of transformation where we are seeing an emerging trend of asset class with about 45-50 per cent completed assets in key sectors like roads, airports, renewable energy, and so on. This presents an opportunity for refinancing through the bond market and asset monetisation. With infrastructure now being propelled by the aspirations of the people, rapid strides can be anticipated across the entire landscape over the next decade. As demand continues to rise, the Government will need to effectively accommodate these aspirations. We are also strategically working towards fine-tuning our business model that promotes focused investments in bonds and InvITs, in addition to existing product lines such as direct lending, takeout finance, and refinance and credit enhancement. IIFCL started subscription to infrastructure project bonds and lending to InvITs in FY22. Since then, it has invested Rs 84 billion in infrastructure bonds and sanctioned Rs.116 billion to InvITs and disbursed Rs.48.51 billion. For a fast expanding economy like India, an end-to-end robust infrastructure network is a substantial commitment to lead investment-driven growth. In less than two decades, IIFCL has been able to carve a niche for itself and create experts in project finance and PPPs with vast experience in the infrastructure financing sector. In its remarkable journey of 18 years, the company has been an all-rounder in this complex yet very integral sector to the growth of the nation – infrastructure. IIFCL’s role in the next phase of infrastructure growth will be multifaceted. We intend to increase our exposure in different sectors of infrastructure, increase our product portfolio, and enhance our role in policy advocacy as well. What reforms will be needed to take the infrastructure sector to the next level? I would like to mention four specific reforms needed in the infrastructure sector: First, a new financial architecture needs to be put in place wherein banks fund greenfield projects in line with their liability profile. After completion, the project can be offloaded to the bond market and/or other banks and financial institutions with a long-term lending profile. Second, IIFCL is advocating an insurance product to cover project completion risks such as delays in land acquisition, delays in obtaining clearances and approvals, local opposition, change in law/order. Known as ‘Project Completion Risk Insurance’, the product shall require the concessioning authorities subscribing for insurance for making termination payment to lenders/developers. This will not only reduce the burden on the exchequer of making termination payments but also protect the interest of lenders and developers. Third, it is high time for the country to come up with a tripartite nature of concession agreements, involving the concessionaire, concessioning authority and lenders. Being the largest stakeholders in an infrastructure project with over 70 per cent financial stake, lenders must have a say. This will improve the bankability of a project and boost lender confidence.Last, an Infrastructure Law must be established to address the concerns and priorities of all stakeholders. The demands of a rapidly growing nation necessitate a proactive approach in all our endeavours. Embracing technology, fostering sustainable practices and aligning with global best practices will be pivotal in shaping our future.Apart from government funding, which is one of the biggest sources of funding for infrastructure finance, what are the pros and cons of blended finance in funding infra projects in India? India is in a strong position to continue its impressive economic performance and become a $ 30 trillion economy by FY47. Around Rs.147 billion worth of projects are currently under the conceptualisation phase in the country, as per the Invest India report, which presents significant upcoming opportunities for the private sector to provide the much-needed capital. To realise the full potential that exists in the infrastructure sector, it is imperative for the private sector and the Government to collaborate and complement each other. Blended finance (BF) will be key to supporting India's energy transition through its ability to drive more private capital to high-impact climate projects. According to estimates, the Indian blended finance market stood at $ 1.30 billion in 2022 and is projected to reach $ 2.64 billion by 2027. While DFIs and multilateral development banks (MDBs) are the largest investor categories globally, the Indian BF market is led by NBFCs and banks. NBFCs and banks have been the most prominent investor groups in BF, together accounting for 43 per cent of the ~180 transactions analysed during 2010-2022, followed by multilateral development banks (MDBs) and development finance institutions (DFIs) with about 29 per cent share. BF would reduce the risk for private investors by leveraging public funds, making projects more attractive and feasible. It can well increase investment by attracting a broader range of investors, comprising those who may be hesitant to invest solely in risky infrastructure projects, thus increasing the overall investment pool. By combing different sources of funding, BF can support the development of sustainable infrastructure that meets environmental and social goals and pitch in long-term sustainability. Now, to manage those multiple sources of funding can be complex. It requires sophisticated financial expertise, which may pose challenges, especially for smaller projects or organisations. Some other cons would be limited awareness and conversation about BF structures; aligning the interests of public and private stakeholders, who may have different priorities and risk tolerances, can be difficult and may lead to conflicts. BF structures can involve higher transaction costs owing to the complexity of arrangements and the need for specialised financial instruments and advisors. How can the bond market attract more investors? India's bond market is pivotal to the country's economic structure. With a market cap of over $ 1.2 trillion, nearly triple of Indonesia’s and almost similar to Brazil’s, India’s bond market is the third largest among emerging markets. However, foreign portfolio investment (FPI) in these markets is relatively modest at $ 8.5 billion. The potential of growth in this segment is immense, with various new financing avenues like InvITs, infrastructure project bonds and Alternative Investment Funds (AIFs) entering the market. Further, India’s bond market is expected to experience significant growth owing to international recognition and inclusion in global indices. However, the share of Indian bond markets in funding the infrastructure sector has been low compared to other developed and developing economies. This is mainly because bonds backed by infrastructure projects generally have a lower than investment grade rating. Insurance firms and pension funds are not allowed to invest in assets rated AA or below. This consequently impacts the capacity of infrastructure businesses to raise capital. IIFCL introduced an innovative intermediation mechanism, known as Credit Enhancement, to strengthen the inherent features of a bond issue by bringing in some safety features and attracting long-term debt capital. Overall, a supportive policy environment, standardisation of procedures, investor awareness programmes and collaboration between regulators and industry players can significantly broaden India’s bond market. - R SRINIVASAN