1) Project finance sources funds for long-term infrastructure projects through a special purpose vehicle (SPV) formed by corporates and development authorities. 2) The SPV funds 30% of projects through equity and 70% through debt from several banks and financing institutions. 3) Key sources of project financing include external commercial borrowing, term loans, and assistance from institutions like commercial banks, IFCI, SFCs, UTI, and IIBI which provide medium to long-term financing for infrastructure projects.

1. SOURCES
OF
PROJECT
FINANCING

2. Project Financing?
Project finance is the sourcing funds to a long
term infrastructure project, or any other
project, and using the cash flow generated
from the project to payback the financing
procured.

3. Example
• Metro Project- Rs 3000 Crores
• Govt. approach to Corporates
• Special purpose vehicle (SPV) formed by corporate and the city’s
development authority
• 30% of project’s cost funded by equity & 70% funded by debt
• Here, project finance fills the gap
• Several banks and financing institutions have a project financing arm
• They analyze and evaluate if these are good debt investment and
arrange funding for them.
• Syndicate bank finance the project out of which one is sponsor bank.
WHO WILL LEND TO THIS MASSIVE PROJECT?

4. External
Commercial
borrowing
Term loan
.
Assistance
from
Institutions

5. External commercial borrowing
• Priority of investing in the infrastructure and core
sectors such as Power, telecom, Railways, Roads, Urban
infrastructure etc.
• Routes of External Commercial Borrowing in India
Any money that has been borrowed from foreign sources
for financing the commercial activities in India are called
External Commercial Borrowings
AUTOMATIC ROUTE APPROVAL ROUTE

6. Borrowers of Automatic route
• Corporate including hotel, hospital, software sectors
(registered under the Companies Act 1956) and
Infrastructure Finance Companies (IFCs)
• NBFCs
• Units in SEZs
• NGOs engaged in micro- finance activities
EXCEPT -
Banks, FIs, HFCs

7. Amount and maturity period
CATEGORY AMOUNT MATURITY
Corporate other than
those in services
sector viz. hotel, hospital,
and software.
750 $ million or its
equivalent during a
financial year.
Up to 50 $ million – 3 years
Above 50 $ million – 5
years
Corporate in service sector
i.e. hotel,
hospital, and software
200 $ million same
NGOs engaged in micro
finance activities
10 $ million 3 years

8. Borrowers of Approval route
• Banks and financial institutions which had participated
in the textile or steel sector as approved by the
Government.
• Infrastructure Finance Companies.
• Special Purpose Vehicles (SPV) or any other entity
notified by the RBI, set up to finance infrastructure
companies / project exclusively.
• Financially solvent Multi-State Co-operative Societies
engaged in manufacturing
• SEZ developers for providing infrastructure facilities
within SEZ.

9. • ECBs provide opportunity to borrow large volume of funds
• The cost of funds borrowed from external sources at times is
cheaper than domestic funds.
• The borrower can diversify the investor base.
• ECBs are in the form of foreign currencies. Hence, they enable
the corporate to have foreign currency to meet the import of
machineries etc.
• The funds are available for relatively long term
Benefits to Borrower

10. Term Loan
Term Loans for establishing new industrial and infrastructure
projects as well as for expansion, diversification and
modernization of existing infrastructure projects.
Projects involving very heavy investment which is not possible
by an individual or promoters
SHORT
TERM
LONG
TERM
SUITABLE FOR ?

11. Assistance from Institutions
• Commercial banks (ICICI,SBI,IDBI )
Principal objective-
providing medium-
term and long-term
project financing to
Indian businesses
Range of financial
services for new and
existing business
Actively providing
assistance to the key
infrastructure sectors
viz . electricity
generation, telecom
services, roads &
bridges and ports

12. • Industrial finance Corporation of India (IFCI)-
-Established in 1948
- Objectives :
• Assistance towards balanced regional development.
• Encouraging new Entrepreneurs
• Development of management education in the country.
• State financial corporations (SFC)-
- Established in 1951
- Provide short and medium term finance to Industries which
are outside the scope of IFCI

13. • Unit trust of India (UTI)
- Established in 1964
- Objective :
To mobilize the community’s saving and channelize them into
productive venture. For this purpose, it sanctions direct
assistance to industrial concern, invest in their shares and
debentures.
• Industrial Investment bank of India Ltd.
The bank assist sick units in the reorganisation of their share
capital, improvement in management system , and provision
of finance.