48353-001: Enabling Monetization of Infrastructure Assets in India | Asian Development Bank

India: Enabling Monetization of Infrastructure Assets in India

Sovereign (Public) Project | 48353-001 Status: Closed

The importance given by the Government of India to infrastructure has increased substantially by doubling the target investment requirements to Rs51 trillion (more than $1.0 trillion) in the sector under the current 12th Five Year Plan (2012 2017). Supply of long term financing for infrastructure has historically been the stronghold of commercial banks. With the rapid growth in bank credit to infrastructure, banks are increasingly becoming constrained lending to the sector as they gradually are approaching their internal and prudential exposure limits. With the implementation of Basel III in March 2019 in India, banks and in particular, public sector undertaking (PSU) banks are not well placed to meet capital projections to manage the transition. PSU banks will have to rely heavily on government contributions and/or raise external capital.

Project Details

Project Officer
Lambert, Donald J. South Asia Department Request for information
Country
  • India
Modality
  • Technical Assistance
Sector
  • Public sector management
 
Project Name Enabling Monetization of Infrastructure Assets in India
Project Number 48353-001
Country India
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 8876-IND: Enabling Monetization of Infrastructure Assets in India
Technical Assistance Special Fund US$ 225,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Knowledge solutions
Private sector development
Sector / Subsector

Finance / Banking systems and nonbank financial institutions

Gender Equity and Mainstreaming No gender elements
Description

The importance given by the Government of India to infrastructure has increased substantially by doubling the target investment requirements to Rs51 trillion (more than $1.0 trillion) in the sector under the current 12th Five Year Plan (2012 2017). Supply of long term financing for infrastructure has historically been the stronghold of commercial banks. With the rapid growth in bank credit to infrastructure, banks are increasingly becoming constrained lending to the sector as they gradually are approaching their internal and prudential exposure limits. With the implementation of Basel III in March 2019 in India, banks and in particular, public sector undertaking (PSU) banks are not well placed to meet capital projections to manage the transition. PSU banks will have to rely heavily on government contributions and/or raise external capital. In this context, if banks are to continue to lend to the infrastructure sector, it will need to secure long-term viable sources of funds or sell-down existing loans to create liquidity and additional capital.

The capacity and development technical assistance on Enabling Monetization of Infrastructure Assets (the Project) in India aims to (i) identify the rationale, the issues and challenges, and the enabling framework for securitization; (ii) engage with regulators and market participants; and (iii) develop a structure and roadmap that will lead to piloting a project of monetizing or securitizing infrastructure loans of select PSU banks in India.

Project Rationale and Linkage to Country/Regional Strategy The Project will explore the potential of securitization as a commercially-viable structure for infrastructure financing, especially in light of Basel III norms. The objective of securitization is to help PSU banks to (i) reduce capital requirements as a result of its significant lending exposure to the infrastructure sector, in line with meeting Basel III norms; and (ii) recycle capital by creating liquidity and headroom for further lending to infrastructure projects, including new or greenfield projects.
Impact Improved enabling framework on securitization in India
Project Outcome
Description of Outcome Ready pilot securitization structure for candidate PSU bank/s for implementation
Progress Toward Outcome A draft structure has been proposed.
Implementation Progress
Description of Project Outputs

1. Completed thorough assessments of infrastructure financing and securitization market in India

2. Developed sound business case for securitization of infrastructure assets in India

3. Developed commercially-viable structuring options on securitization of infrastructure assets

4. Candidate PSU bank/s identified for the pilot securitization

5. Stakeholder workshop conducted and project roadmap completed for the pilot securitization

Status of Implementation Progress (Outputs, Activities, and Issues)

DEA, DFS and key stakeholders have acknowledged the benefits of the securitization of infrastructure assets, presented in project outputs 1-4 (i.e., "As-Is Analysis," "Market and Policy Assessment Report," "Structuring Commercially-Viable Securitization of Infrastructure Loans," and "Screening, Selection and Preliminary Due on Candidate Bank," and expressed support for the TA. The stakeholder workshop, conducted on 11 May, presented the work under the TA and the findings of the study, and engaged various stakeholders for discussions - leading to a roadmap for the pilot securitization transaction.

The additional output (publication on securitization) is in progress and is targeted for publication in October 2017.

Geographical Location Nation-wide
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design The S-CDTA includes, among other things: (i) analysis of infrastructure financing and the securitization market in India; (ii) an assessment of select PSU banks' infrastructure loan portfolio; (iii) a market study and dialogue with stakeholders to gain inputs on structuring of the pilot project; (iv) an assessment of the regulatory, legal, taxation, and accounting frameworks identifying challenges and issues which will need to be reformed; (v) the development of potential securitization structures for the pilot project and recommendation of a viable framework allowing the sale of infrastructure loans from the PSU bank/s to the special purpose vehicle; (vi) screening and selection of candidate PSU bank/s for the pilot project; (vii) preliminary due diligence on the infrastructure loan portfolio of select PSU bank/s; (viii) identify and recommend potential reforms to strengthen candidate PSU bank/s' credit and risk management practices, including governance; (ix) development of a project roadmap; and (x) organization of a stakeholder workshop for the dissemination of findings and recommendation.
During Project Implementation

The Department of Financial Services (DFS) is the executing agency for the S-CDTA. The South Asia Public Management, Financial Sector and Trade Division (SAPF) of ADB is implementing the S-CDTA. CRISIL Infrastructure Advisory was engaged as consultant in June 2015.

The S-CDTA was structured into five modules. To date, all five modules were completed with extensive consultations made by ADB and CRISIL with DEA, DFS, regulators, public sector banks, and market stakeholders.

Status of completion of the S-CDTA outputs are as follows:

Output 1: As-is Analysis Report (September 2015)

Output 2: Market and Policy Assessment Report (December 2015)

Output 3: Structuring a Commercially-Viable Securitization of Infrastructure Loans (March 2016)

Output 4: Developing a Pilot Transaction remains ongoing. Liaison with select candidate public sector bank to validate benefits of securitization to banks, using actual infrastructure portfolio data (November 2016)

Output 5: Final Stakeholder Workshop (May 2017)

Output 6: Publication on Securitization (October 2017)

Business Opportunities
Consulting Services

To achieve the planned outcome, the S-CDTA will engage a consulting firm on a lump-sum remuneration contract based on the delivery of the outputs specified in the terms of reference. The method of selection will be based on ADB Consultants' Qualifications Selection applicable for small assignments given that the proposed TA contemplates recruitment of highly specialized experts in the field of project financing, securitization, banking regulations, credit, legal, taxation and accounting, and working familiarity of Indian banks. With the introduction of Basel III regulations in India by 2018, it is preferred that the consulting firm would have relevant technical and project expertise to advise ADB and Government of India on the implications of this new regulation to the proposed securitization of infrastructure loans by PSU banks being envisaged.

Consultants will be engaged by ADB in accordance with its Guidelines on the Use of Consultants (2010, as amended from time to time). The proceeds of the S-CDTA will be disbursed in accordance with ADB's Technical Assistance Disbursement Handbook (2010, as amended from time to time). For the dissemination of the findings of the study through stakeholder workshop, the advance payment facility could be used.

Procurement not applicable
Responsible ADB Officer Lambert, Donald J.
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Department of Financial Services, Ministry of Finance
3rd floor, Jeevan Deep Building, 10 Sansad Marg
Timetable
Concept Clearance -
Fact Finding -
MRM -
Approval 13 Feb 2015
Last Review Mission -
Last PDS Update 04 Sep 2017

TA 8876-IND

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
13 Feb 2015 - 13 Feb 2015 30 Mar 2016 15 Nov 2017 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
225,000.00 0.00 0.00 0.00 0.00 0.00 225,000.00 13 Feb 2015 143,963.84

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Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

None currently available.


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Tenders

No tenders for this project were found.

Contracts Awarded

Contract Title Approval Number Contract Date Contractor Contractor Address Executing Agency Contract Description Total Contract Amount (US$) Contract Amount Financed by ADB (US$)
Capacity Development Technical Assistance 8876 05 Jun 2015 Crisil Infrastructure Advisory (India) in association with Amarchand & Mangaldas & Suresh A. Shroff & Co. (India) Crisil House, 121/122, 4th Floor Andheri-Kurla Road, Andheri-East Mumbai 400 093, India Department of Economic Affairs 164,280.00

Procurement Plan

None currently available.