CNBC-TV18 reported that the India government will refinance infrastructure projects by using India Infrastructure Finance Company as the apex body for distribution of loans.

The method that the Finance Ministry as well as the Prime Minister’s office is considering is to not burden the fiscal, not disobey the Fiscal Responsibility and Budget Management or FRBM targets, as also to not touch the FX reserves at a time when they are needed anyways to defend the rupee. So those two vulnerabilities, on which the country could get downgraded are going to be avoided. India Infrastructure Finance Company Limited or IIFCL would be used as a nodal agency which will take external commercial borrowing or ECBs.

When a private sector company raises an ECB, it’s either not available or it’s available at a very steep rate given the current risk aversion in global markets. As there is no risk aversion to lending to sovereigns or at least there is much less risk aversion. So the IIFCL being owned 100% by the government of India should be able to raise money at a fairly attractive rate. And assuming this is about 2% to 3% points over Libor, so it adds a bit more on its own costing and expenses and passes on to banks which do the due diligence of the projects, they lend to customers and on the back of that lending, they get a refinance on a relatively cheap rate from IIFCL.