Project Finance by Banks- Things You Need To Know

Project Finance by Banks- Things You Need To Know

Introduction

Project Finance is one of the key focus areas for Banks. Project Finance Group institutionalizes capabilities to cater unique and multidimensional process of project finance transactions which are led by customized project structuring approaches. Banks extend their project financing services for new projects and also expansion, diversification and modernization of projects( existing ones) in infrastructure and non -infrastructure sectors.

Major sectors in which project finance is done by Banks:

Manufacturing & Mining:  

Funding requirements of large brown field and green field projects in manufacturing sector ( like Steel, Aluminium, Cement, Auto, and Hotels are arranged by the project financing group). In mining sector, banks provide financial assistance to several big conglomerates for overseas mine acquisition and have funded requirements of local miners.

Oil & Gas: 

Banks are lead arrangers of finance for refineries in the country and funding of gas pipeline projects remains a key area for banks in India.

Power: 

Bank finances large hydro-power projects and has been the lead arranger towards funding of a number of thermal power plants being set-up by large infrastructure developers

Ports / Airports: 

 Banks provided assistance to a number of cargo, container & liquid port terminals. They(Banks) have been credited for greenfield international standard projects which were initiated and achieved success.

Roads: 

Development of Infrastructure sector is a priority for Banks. Bank's funding for a number of road projects for modernizing National/state/ regional roads and check posts is done.

Telecommunications ( mostly by PSBs)

Railways ( by SBI and other banks)

Smart Cities and Urban Infrastructure


Manufacturing of Cement, steel, engineering, auto components, textiles, Pulp & papers, chemical and pharmaceuticals also for Tourism &Hospitality, Educational Institutions, Health industries.

Project Financing Group of Banks provides a wide range of services as :

  • Rupee term loans
  • Foreign currency term loans.
  • Export Credit Agency backed long term debt
  • External Commercial Borrowings
  • Lines of credit from different multilateral institutions
  • Facilities like Letter of Credit, Bank Guarantee, Supplier’s Credit, Buyer’s Credit etc.( Which are non-fund based)
  • Mezzanine financing and subordinated debt.
  • Loan syndication
  • Loan underwriting
  • Deferred payment guarantee

Importance of Project finance by Banks:

  • Most Banks have diversified its role from being only a fund provider to pure advisory services.
  • Today most banks have hired industry and economic experts to form a distinct Line of business to provide consultancy to infrastructure projects. 
  • Besides pure advisory income, banks play a major role in intermediation to arrange funds from third party lenders, for a fee. 
  • Expertise in evaluating projects has given banks the confidence to step into the shoes of a guarantor for such projects globally.
  • As for direct financing, banks have been proactively engaged with our country's policy makers to mull on initiatives to make infrastructure financing a cheaper and viable option for projects.

What is 5:25 Scheme?

According to RBI circular, “Banks can flexibly structure the existing project loans to infrastructure and core industries projects with the option to periodically refinance them.”
The 5:25 scheme enables banks to refinance or sell out their long-term project loans for every five years so that both the borrower and the lender do not face any difficulty. For banks to avail such a facility, the loan tenure cannot be more than 25 years.
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