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TABLE OF CONTENTS
Acknowledgement!
E"ecuti#e Summar$%
A&out Bank of &aroda'
Introduction(
Features of Infrastructure Finance)
Sources of Infrastructure Financing in India)
*rowt+ Potential,,
*o#ernment Initiati#es,!
-ig+lig+ts of .nion Budget !/,01,%,%
2oad A+ead,%
Issues 3 c+allenges constraining infrastructure funding,'
Infrastructure Financing in Ot+er Countries,)
Infrastructure Financing &$ commercial Banks,)
Ste4s in Infrastructure Finance ,)
2enewa&le Energ$ Project Finance!/
Basic Com4an$ Information0/Project 5etails0!
Project Cost00
6eans Of Finance00
Credit A44raisal 5etails0%
TE7 Stud$ Anal$sis0(
Securit$ and Banking arrangements08
6ilestones of t+e Project08
Project Im4lementation09
2easons for dela$ in Im4lementation%,
Current Status%!
Swot Anal$sis%0
2ecommendations%%
2eferences%'
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E:EC.TI7E S.66A2;
T+e fast growt+ of t+e econom$ in recent $ears +as 4laced increasing stress on
a#aila&le infrastructure suc+ as electricit$< railwa$s< roads< 4orts< air4orts< irrigation
and ur&an and rural water su44l$ and sanitation< all of w+ic+ alread$ suffer from a
su&stantial deficit from t+e 4ast in terms of ca4acities as well as efficiencies in t+e
deli#er$ of critical infrastructure ser#ices T+e econom$ can get a &oost t+roug+
im4ro#ed infrastructure T+e im4lementation of infrastructure 4rojects itself 4ro#ides
jo&s and su44orts economic de#elo4ment and it contri&utes to an im4ro#ed =ualit$ of
life for mankind
As t+ese 4rojects re=uire +uge ca4ital in#estments and t+e returns are s4read o#er
longer time +ori>ons< financing t+e e#er growing needs of infrastructure 4rojects
remains an area of t+rust ? concern
T+is re4ort t+rows lig+t on different sources of infrastructure financing a#aila&le in
India and t+eir e"4osure to infrastructure 4rojects T+e growt+ 4otential< go#ernment
initiati#es and issues and c+allenges of infrastructure financing sector are discussed
in &rief Ste4s followed in issuing finance to infrastructure finance 4rojects are
discussed along wit+ different forms of funding a#aila&le from commercial &anks
Bank of Baroda@s financing to renewa&le energ$ 4roject is taken as sam4le 4roject
and +as &een studied in details and major 4arameters w+ic+ are considered for loan
a44ro#al 3 furt+er de&t ser#icing are outlined along wit+ 4roject e"ecution details
Finall$ &ased on findings of t+e stud$ some recommendations are made
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ABO.T BAN OF BA2O5A
Bank of Baroda BoB is an Indian state1owned &anking and financial ser#ices
com4an$ +ead=uartered in 7adodara It offers a range of &anking 4roducts and
financial ser#ices to cor4orate and retail customers t+roug+ its &ranc+es and t+roug+
its s4eciali>ed su&sidiaries and affiliates in t+e areas of retail &anking< in#estment
&anking< credit cards and asset management Its total glo&al &usiness was 8
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&anking section Bank of Baroda offers 4roducts and ser#ices like w+olesale &ankingero in real terms -owe#er< once
again as in t+e case of demand< w+ile real returns could &e near >ero t+e$ are
unlikel$
to &e negati#e for e"tended 4eriods of time w+ic+ need not &e t+e case for
manufactured goods 2eturns +ere need to &e measured in real terms &ecause oftent+e re#enue streams of t+e 4roject are a function of t+e underl$ing rate of inflation
SO.2CES OF INF2AST2.CT.2E FINANCIN* IN IN5IA
In first 0 $ears of ele#ent+ 4lan< &udgetar$ su44ort constituted H%' 4er cent of t+e total
infrastructure s4ending T+e de&t from Commercial &anks< NBFCs< Insurance Com4anies
and t+e e"ternal sources constituted H%, 4er cent of t+e funding w+ile t+e &alance ,% 4er
cent was funded t+roug+ E=uit$ and F5I
Sources of %unds for infrastructure -nvestment
Banks:
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T+ere +as &een a ra4id growt+ in &ank credit to infrastructure 4rojects wit+ &anks
contri&uting to t+e tune of !, of t+e total in#estment during first 0 $ears of ,,t+ fi#e
$ear 4lan, 6ost of t+is funding +as &een 4ro#ided &$ Pu&lic Sector &anks and in
some cases t+e sectoral 4rudential ca4s +a#e almost &een reac+ed es4eciall$ for
4ower sector t+us constraining an$ furt+er lending to t+ese sectors Banks +a#e
4rudential e"4osure ca4s for infrastructure sector lending as a w+ole as well as for
indi#idual sectors
Banks ,ending to'ards infrastructure investment
on )anking financia, com*anies (B%/s+
O#er t+e ele#ent+ 4lan 4eriod< NBFCs lending increased s+ar4l$ 4rimaril$ due to
+ig+er demand from 4ower< telecom and roads sectors
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ro't" registered )y B%/s to'ards infrastructure investment and B%/s
,ending
ife insurance /om*anies
Life insurance com4anies are re=uired to in#est at least ,' of t+eir Life Fund in
infrastructure and +ousing In#estment &$ insurance com4anies in !/,! +as onl$
&een ,/ of insurance life fund A.6 w+ic+ indicates furt+er 4otential to utili>e
insurance com4anies to fund infrastructure de#elo4ment 6oreo#er insurance
4enetration is estimated to continue to rise< wit+ t+e insurance 4remium e"4ected to
grow from t+e current a44ro"imate % of *5P to (% of *5P &$ t+e end of t+e
twelft+ 4lan T+is will generate furt+er 4otential for infrastructure funding +owe#er it
will &e su&ject to management of 4rudential and regulator$ constraints in t+e sector
terna, commercia, )orro'ings (/Bs+
T+e s+are of ECB in total infrastructure in#estments +as &een recording a decline
T+is could &e a reflection of t+e wa$ regulator$ en#ironment is #iewed &$ t+e
international in#estors T+e$ are not keen on making long term in#estments in
en#ironments w+ic+ +a#e regulator$ idios$ncrasies .nder1de#elo4ed financial
markets?4roducts ma$ +a#e also contri&uted to t+is dro4 in ECB funding
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S"are of /Bs in tota, infrastructure investment
uity
A large 4art of e=uit$ in#estments relies on foreign in#estments wit+ domestic
in#estment institutions not s+owing significant interest in taking e=uit$ in
Infrastructure 4rojects T+e e=uit$ in#estment for t+e twelft+ 4lan 4eriod is estimated
to &e 2s %'( lak+ crores
T+ere are t+ree 4rinci4al forms of finance for infrastructure ser#ice deli#er$
1.Pu),ic %inance In industriali>ed countries 4u&lic finance consists of go#ernment
4ro#iding e=uit$ financing seed ca4ital< in C+ina@s terms t+roug+ general &udget
reser#es< earmarked reser#es< self1raised funds eg licensing fee< and sale< rental
or leasing of go#ernment assets< and intergo#ernmental grants and fiscal transfers
5e&t financing in t+e 4u&lic finance s$stem is t+roug+ 4olic$ loans at concessional
rates< su44lier credits< and fi"ed income securities in t+e form of ta"1secured &onds
and re#enue &onds secured &$ 4roject1related re#enue streams In some casesation of cor4orate assets and assignments of recei#a&les
3. Pro4ect %inance Project finance consists of go#ernment< cor4orations and PPP
financing in#estments solel$ t+roug+ t+e re#enue stream of t+e infrastructure
4rojects wit+out taking recourse to go#ernment guarantees 6ost 4roject finance is
made a#aila&le &$ 4roject1s4ecific com4anies wit+ e=uit$ +eld &$ s4onsors E=uit$
takes t+e form of s4onsor in#estment in s+are ca4ital of t+e 4roject com4an$ 5e&t is
full$ secured t+roug+ t+e re#enue stream of t+e infrastructure 4rojectJ t+is stream is
assigned to lenders t+roug+ securit$ agreements wit+ trustees and does not a44ear
on s4onsor com4anies@ &alance s+eets 5e&t financing usuall$ takes t+e form of a
com&ination of &ank loans usuall$ s$ndicated for large 4rojects< s4onsor loansed to lenders
*2OT- POTENTIAL
Planning commission is targeting an in#estment of ', lak+ crores o#er t+e duration
of t+e twelft+ fi#e $ear 4lan w+ic+ is almost dou&le t+e amount 4ro4osed under t+e
ele#ent+ 4lan +ile t+e s+are of 4u&lic in#estment is 4rojected to decrease from
(! to a le#el of '0 in t+e twelft+ 4lan< t+e s+are of 4ri#ate in#estment is 4rojected
to increase from 08 ele#ent+ 4lan to %) twelft+ 4lan of t+e total in#estment
In com4arison to ele#ent+ 4lan< a #er$ significant growt+ K,// in in#estments
Budgetar$ 3 Pri#ate +as &een 4rojected for Non1Con#entional Energ$< 62TSes t+e im4ortance of accelerating t+e in#estments in
infrastructure to &oost t+e countr$@s slowing econom$ T+erefore< it +as set a
massi#e target for dou&ling in#estment in infrastructure from 2s !) lak+ crores
ele#ent+ 4lan !/,,?,! 4rices to 2s ', lak+ crores during t+e twelft+ 4lan 4eriodes< can 4ro4el India@s economic growt+ to a +ig+er trajector$
-I*-LI*-TS OF .NION B.5*ET !/,01,%
Pro4osed allocation of 2s ', lak+ crores towards infrastructure in#estment
during t+e ,!t+ Plan 4eriod wit+ H%) e"4ected to come from t+e 4ri#ate
sector New I5F launc+ed to ta4 t+e o#erseas markets for long term 4ension and
insurance funds< for financing infrastructure 4rojects Four I5Fs +a#e &een
registered wit+ SEBI out of w+ic+ two of t+em were launc+ed in t+e mont+ of
Fe&ruar$< !/,0 2s '/
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Ca&inet Committee on In#estment CCI +as &een set u4 to monitor and
re#iew infrastructure 4rojects
2OA5 A-EA5
A coordinated effort is re=uired from t+e go#ernment< 2eser#e Bank of India %9 B!S -M-=S:
etter >f /redit:
A letter of credit is a commercial instrument of assured 4a$ment and widel$ used &$
t+e &usiness communit$ for its #arious ad#antages It is an instrument &$ w+ic+ a
&ank undertakes to make 4a$ment to a seller on 4roduction of documents sti4ulated
in t+e credit T+e credit s4ecifies as to w+en t+e documents are 4resented to t+e
4a$ing &ank or at some future date< de4ending u4on t+e terms sti4ulated in t+e
credit
Bank uarantee:
*uarantee is a contract to e"ecute t+e 4romise< or disc+arge t+e lia&ilit$ of a t+ird
4erson in case of +is default In t+e ordinar$ course of &usiness< t+e &ank often
issues guarantees on &e+alf of its customers in fa#our of t+ird 4arties +en t+e
&ank issues suc+ a guarantee< it assumes a res4onsi&ilit$ to 4a$ t+e &eneficiar$< in
t+e e#ent of a default made &$ t+e customer A &ank guarantee ena&les t+e
customer de&tor to ac=uire goods< &u$ e=ui4ment< or draw down loans< and
t+ere&$ e"4and &usiness acti#it$eferred Payment uarantee:
A deferred 4a$ment guarantee is a contract under w+ic+ a &ank 4romises to 4a$ t+e
su44lier t+e 4rice of mac+iner$ su44lied &$ +im on deferred terms< in agreed
installments wit+ sti4ulated interest in t+e res4ecti#e due dates< in case of default in
4a$ment t+ereof &$ t+e &u$er
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STEPS IN INF2AST.2.CT.2E FINANCE
Page!0
u!mission of "pplication !y t#e !orro$er
Preliminary %nformation Collection&
%nformation 'emorandum
Pro(ect "ppraisal
Risk 'easurement and Rating
Preparation of Final proposal
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1. Su)mission of !**,ication )y )orro'er:
T+e &orrower a44roac+es t+e &ank wit+ t+e 4ro4osal to finance a 4roject Borrower
+as to gi#e a written a44lication in fa#our of &ranc+ +ead containing t+e &rief
information of a44licant< com4an$< industr$< a&out Project< Project duration and fund
re=uirement from t+at &ank
2. Pre,iminary -nformationC -nformation Memorandum:
T+e &orrower +as to 4ro#ide t+e Bank wit+ t+e 4reliminar$ information T+e &orrower
+as to 4re4are a detailed 4roject re4ort< w+ic+ is su&mitted to t+e &ank and on t+e
&asis of w+ic+ t+e final re4ort is 4re4ared In case of a s$ndication arrangement< t+e
lead arranger 4re4ares an Information 6emorandum in consultation wit+ t+e
&orrowing entit$
3. Pro4ect !**raisa,:
Page!%
Proposal for$arded to t#e sanctioning
aut#ority
Pro osal re ectedanctioned
anction Letter issued
Documentation ) Dis!ursement
Credit monitoring* uper+ision and
Follo$,up
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A detailed and critical a44raisal of t+e 4roject is necessar$< &efore taking a final
decision a&out financing an$ 4roject< w+et+er indi#iduall$ or jointl$ T+e a44raisal
met+odolog$ of t+e &anks s+ould kee4 4ace wit+ e#er c+anging economic
en#ironment and also addresses t+e #arious t$4es of risks #i> industr$< &usinessation is considered at realistic le#els and t+e sales #olume is
calculated in accordance wit+ t+e same Economic #ia&ilit$ of t+e 4roject +as &een worked out on t+e &asis of different
met+ods Sensiti#it$ anal$sis for t+e 4roject was carried out 2e#ised estimated 4roject cost of 2s'0)% crores is 4ro4osed to &e funded
wit+ total term loan of 2s0,// crores and 4romoters contri&ution of 2s!!)%
crores Preference S+are Ca4ital of 2s,9/% crores and e=uit$ s+are ca4ital
of 2s0)/ crores In #iew of increased =uantit$ of generation and collection of waste< com4an$
modified its design 4arameters from t+e original 4lan of ! lines of ,'/ TP5
eac+ for 0// TP5 of waste to an installed ca4acit$ of two lines of !// TP5
eac+ for %// TP5 waste T+e c+ange in design 4arameters +as meant t+at
si>ing of all e=ui4ments +as c+anged and some additional
e=ui4ment?au"iliaries are re=uired including one gas engine T+e re#ised ci#il cost to &e certified &$ &ank@s em4anelled arc+itect Suita&le
condition sti4ulated T+e com4an$ +as o&tained major a44ro#als for setting u4 t+e 0// TP5?0 6
4lant -owe#er< t+e same would &e re=uired to &e suita&l$ amended? modified
for t+e en+anced ca4acit$ of %// TP5? % 6 of t+e 4lant
SEC.2IT; AN5 BANIN* A22AN*E6ENTS
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Primar" Securit":
-$4ot+ecation of Plant and mac+iner$ created out of &ank finance
E=uita&le mortgage of land and &uilding leased
B* 6argin
ollateral:
2H"ita)*e mortgage of Offi%e in Andheri
D-Rs
P*edge of 1,
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ca4acit$< t+e same terms of t+e Power Purc+ase will &e a44lica&le to
en+anced ca4acit$ as 4er t+e Power Purc+ase Agreement T+e com4an$ +as taken u4 t+e issue wit+ 6a+aras+tra Electricit$ 2egulator$
Commission 6E2C for increase in tariff t+roug+ an A44eal to t+e A44ellateTri&unal for Electricit$ and an order to &e awarded tariff of u4to 2s(%0 4er
unit +as &een awarded in fa#or of t+e com4an$ 5uring t+e im4lementation 4eriod in !/,,< t+e 2ST6C a44roac+ed t+e
5e#elo4ers to en+ance t+e ca4acit$ of t+e 4roject to %// TP5 % 6 due to
t+e increased generation in 2ST as 4er t+e terms of t+e Concession
Agreement T+erefore< an additional term loan of 2s 80/ crores for total 4roject costing
2s '0)% cr additional 2s ,!') cr wit+ 5E ratio of ') %0 was sanctioned
&$ Bank of Baroda in 6arc+ !/,! for t+e 4ro4osed e"4ansion T+e 4roject +as &een commissioned and 4ower &eing generated is &eing
used for Ca4ti#e consum4tion T+e 4roject is awaiting final grid connecti#it$
a44ro#al to start commercial w+eeling of 4ower and com4an$ is e"4ecting
first 4ower &ill on 0,/0!/,0-owe#er< t+e com4an$ +as started selling
com4ost since 5ecem&er !/,! and it e"4ected to earn re#enue of 2s !'1
0/ lacs In !/,!1,0 from com4ost
P2OECT I6PLE6ENTATION
Project was initiall$ conce4tuali>ed for t+e de#elo4ment of a aste1to1energ$
facilit$ for t+e scientific 4rocessing and dis4osal of 0// Tonnes 4er da$ TP5
of 6unici4al Solid aste 6S to &e deli#ered &$ t+e 2ST 6unici4al
Cor4oration 2ST6C As 4er t+e 4rocess of 6E2C< in order to o&tain t+e order for tariff on w+ic+
&asis t+e PPA waste was to &e entered for esta&lis+ing t+e 4roject #ia&ilit$
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