India Signs $4.2 Billion Loan Agreement with World Bank

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Researched by Industrial Info Resources (Sugar Land, Texas)--India has signed agreements with the World Bank (Washington, D.C.) to receive $4.2 billion in funding for projects in the banking, power and infrastructure sectors. Representatives of India Infrastructure Finance Company Limited (IIFC) (New Delhi) and Power Grid Corporation of India Limited (BSE:532898) (PGCIL) (Gurgaon, Haryana) signed the agreements with officials from the World Bank. The International Bank for Reconstruction and Development (IBRD) (Washington, D.C.), a subsidiary of the World Bank, will disburse the funds.

As per the agreement, IBRD will provide $2 billion in support to India's banking sector. The funding is expected to help this industry curb the impact of the economic slowdown, maintain credit flow in public-sector banks, and stimulate the economy. India's public sector banks are stable and profitable, and enjoy strong market capitalization and credit assets. The loan will have a variable spread, with a six-month London Interbank Offered Rate (LIBOR) across 30 years and a grade payment period of five years. LIBOR is a daily reference based on the rates of interest that banks pay to borrow unsecured funds in London's money market. The funding will be made available over a period of two years. The government is expected to begin discussions with banks to determine the amount to be allotted to each bank and the loan duration.

IIFC will receive a $1.2 billion loan, of which $1.195 billion will be utilized to finance infrastructure projects in the country. A $5 million fund has been set aside by IBRD to assist in capacity building of IIFC. The loan of $1.195 billion, which is expected to be disbursed by 2015, will be spread across a period of 28 years with a grace payment period of seven and a half years. The financing will be based on a six-month LIBOR.

As part of the agreement, India's power transmission sector will receive $1 billion in funding. This includes project financing for India's fifth Power System Development project, which is aimed at developing, improving and strengthening the power distribution network in the country, and increasing the reliability and quality of power supply. Some of the projects under this scheme are:

• Strengthening the southern-western regional power link.
• System improvement and strengthening of transmission lines in the western region for the 4,000-MW Sasan ultra-mega power project (UMPP).
• System improvement and strengthening of transmission lines in the northern region for the Sasan UMPP and in the northern region for the 4,000-MW Mundra UMPP.
• System improvement and strengthening of transmission lines in the western and southern regions for the 4,000-MW Krishnapatnam UMPP.

The total cost of these projects, which are expected to be completed by 2015, is estimated to be about $1.562 billion.

India is expected to require annual investments to the tune of $100 billion to $150 billion for infrastructure development. According to a recent report published by Business Monitor International (BMI) (London, England), during the 11th five-year plan period, 2007-12, the Indian government has planned project investments of about $500 billion in this sector. About $167 billion of this funding is expected to be allocated to utilities. This includes $8 billion for airports, $92 billion for construction of roads, $22 billion for development of ports, and $65 billion for railways. Industry experts indicate that private sector players will have a larger role to play in the infrastructural development in the country. The government is expecting about 30% of the investments in this sector to come from private players and public-private partnerships.

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