The proposed TA supports a critical pillar of the infrastructure financing strategy through bond market financing in India. Given exposure limits by banks to infrastructure financing, the proposed (BGFI) will provide an institutional mechanism to credit enhance debt instruments issued by infrastructure and non-infrastructure corporations and special purpose vehicles (SPVs). The credit enhancement will occur from a standalone rating of around BBB to AA thereby enabling contractual savings institutions to invest in the instruments in line with regulations. Bond proceeds may be used to pre-pay existing bank loans thereby freeing up headroom from banks and allowing them to lend to new Greenfield projects and also assist them in managing the asset liability mismatch given the long term nature of infrastructure investment. This in turn would help improve the resilience of the banking sector.
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