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.
|Project Name||Preparing the Bond Guarantee Fund for India|
|Project Type / Modality of Assistance||Technical Assistance
|Source of Funding / Amount||
|Strategic Agendas||Inclusive economic growth
|Drivers of Change||Governance and capacity development
Private sector development
|Sector / Subsector||
Finance / Finance sector development - Infrastructure finance and investment funds
|Gender Equity and Mainstreaming||No gender elements|
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. The proposed TA will focus on developing a business plan for the BGFI based on a demand analysis for the credit enhancement product and assess the capital requirements to establish the BGFI based on the demand analysis. The TA will also support cross border learning and sharing of experiences with SAARC countries.
The TA will develop a feasibility study including a business model for the establishment of a BGFI and thereby contribute towards (i) broadening the investor base in India through developing a new asset class of local currency bonds for institutional investors, and (ii) financial stability as it reduces concentration of assets in the banking system including asset-liability mismatches in the financial system through the development of the bond market. The important components will support (i) demand analysis for credit enhancement products; (ii) business plan for BGFI, and (iii) dissemination of the results.
BGFI will contribute to economic growth and support poverty alleviation by making it possible for companies, predominantly those that fund infrastructure projects to gain access to the local currency bond market for the funding of their infrastructure projects and other long-term investment. Private sector corporations as opposed to public corporations will differentially benefit as they find it relatively more difficult to access longer-term local currency financing. With the funding raised from the bond market, these companies will be able to finance infrastructure projects and other business activities which in turn will create jobs, from which the poor could directly benefit. In addition, by helping to improve the resilience of the banking sector, BGFI could help protect the poor from a sharp decline in employment that could result from drastic economic downturns caused by stress in the banking system and an outright banking crisis. As witnessed during the 1997/98 Asian financial crisis, the sharp economic contraction caused millions of citizens in ASEAN and Korea to fall below the poverty line and reversed over night the progress of alleviating poverty that had taken decades for the governments in the region to achieve.
Impact: Decision on whether or not to establish BGFI achieved.
Outcome: Government has all required information to decide on establishing a bond guarantee fund in India.
Expected Outputs: (i) A detailed framework and institutional arrangements of BGFI including a business plan, institutional and ownership structure, based on the demand analysis. (ii) A blueprint to operationalizing a BGFI including an ESMS.
|Project Rationale and Linkage to Country/Regional Strategy||
The proposed TA is fully aligned with the Country Partnership Study (CPS) 2009-2012 which emphasizes infrastructure development, catalyzes investment, and facilitates private sector participation in infrastructure development. The proposed TA first appeared as a firm 2011 non-lending product in the India: Country Operations Business Plan 2011-2013 of December 2010.
In accordance with the approach paper for the Twelfth Five Year Plan (2012-2017), India will require approximately $1 trillion to finance infrastructure investment to maintain the targeted GDP growth rate of 9 percent during the plan period. Bond market development is essential to mobilize the large pool of savings in India - which as a share of GDP rivals the savings rate in Singapore - to finance investment. The real issue is the failure to effectively intermediate available savings into the needed long-term funding for infrastructure investments. Effective intermediation can be achieved by raising bond issuance standards in line with ASEAN+3 while ensuring that corporations will be able to gain greater access to the bond market with the use of guarantees as needed.
Finally, in line with MOF's requirement of ensuring "finance plus" from ADB's program, the proposed TA will focus on developing innovative financing solutions such as the proposed bond standards and the bond guarantee fund based on lessons and solutions transferred from ASEAN+3 and adapted to meet the requirements of India.
|Impact||Greater access by corporations to the local currency bond markets to meet their long-term infrastructure financing needs|
|Description of Outcome||The government is well-informed on the benefits and mechanics on the establishment of a successful BGFI|
|Progress Toward Outcome||Government participated in a seminar on 1 June 2015 in Mumbai that review the proposed mechanics.|
|Description of Project Outputs||
1. A detailed framework and institutional arrangements for BGFI prepared
2. A blueprint to operationalize the BGFI prepared
3. Enhanced knowledge on BGFI
|Status of Implementation Progress (Outputs, Activities, and Issues)||The steering committee approved the final report in June 2015. The report has subsequently been posted to ADB's website.|
|Summary of Environmental and Social Aspects|
|Stakeholder Communication, Participation, and Consultation|
|During Project Design||A key objective of the BGFI would be to disseminate best practices with respect to the issues on capacity constraints that exist in the market to mainstream the guarantee product, to all stakeholders which is critical if complex guarantee structures are to evolve and gain wider acceptance in the Indian market.|
|During Project Implementation||
All key stakeholders actively participate in the formulation of the framework and blueprint to operationalize the BGFI.
Carry out stakeholder consultations on nature of ESMS to be recommended for the BGFI and on optimal structures.
|Consulting Services||ADB requested expressions of interest on 30 August 2013. The period for submitting expressions of interest has closed. ADB is reviewing the submissions, will issue a request for proposal to short listed candidates, and move to final selection.|
|Responsible ADB Officer||Lambert, Donald J.|
|Responsible ADB Department||South Asia Department|
|Responsible ADB Division||Public Management, Financial Sector and Trade Division, SARD|
Asian Development Bank
6 ADB Avenue,
Mandaluyong City 1550, Philippines
|Concept Clearance||03 Jun 2011|
|Fact Finding||18 May 2011 to 25 May 2011|
|Approval||17 Dec 2012|
|Last Review Mission||-|
|Last PDS Update||24 Aug 2015|
|Approval||Signing Date||Effectivity Date||Closing|
|17 Dec 2012||31 Jan 2014||31 Jan 2014||28 Apr 2014||31 Jul 2015||-|
|Financing Plan/TA Utilization||Cumulative Disbursements|
|0.00||800,000.00||0.00||0.00||0.00||0.00||800,000.00||17 Dec 2012||512,217.73|
Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.
The Public Communications Policy (PCP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced.
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|Title||Document Type||Document Date|
|Preparing the Bond Guarantee Fund for India: Technical Assistance Completion Report||TA Completion Reports||Jun 2016|
|Preparing the Bond Guarantee Fund for India: Conference Report||Consultants' Reports||Jul 2015|
|Preparing the Bond Guarantee Fund for India: Consultant's Final Report||Consultants' Reports||Apr 2015|
|Preparing the Bond Guarantee Fund for India: Interim Report||Consultants' Reports||Nov 2014|
|Preparing the Bond Guarantee Fund for India: Market Assessment Report||Consultants' Reports||Aug 2014|
|Preparing the Bond Guarantee Fund for India: Inception Report||Consultants' Reports||Jun 2014|
|Preparing the Bond Guarantee Fund for India||Technical Assistance Reports||Dec 2012|
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