India's infrastructure sector is set to benefit from an agreement between the Industrial Development Bank of India (IDBI) and the Export-Import Bank of the United States (US Exim bank). The $300 million facility is the first of its kind between the US Exim bank and the Indian financial institution. The US Exim bank has also approved a $200 million facility to IDBI's subsidiary, the Small Industrial Development Bank of India (SIDBI).
Half of the $300 million facility for IDBI will be used to guarantee rupee -bonds issued by the bank in the domestic and international markets for maturities up to 15 years. The facility is called the Master Credit Facility (MCF).
"With the US bank guaranteeing the bonds, we should be able to get a better price on them," says O.V. Bundellu, chief general manager, IDBI. The funds raised by the bonds will then be used to finance importers of US capital goods. Bundellu says that IDBI, a regular issuer of bonds in the local bond market, has a receptive local market for their bonds, which he says is "fairly buoyant".
The other $150 million will be utilized as a direct guarantee on loans granted by IDBI to Indian importers of US capital goods. Under the Credit Guarantee Facility, importers will be be assessed and their loans covered after approval by the US Exim bank.
According to Bundellu, the infrastructure industry is booming in India. IDBI is considering projects totalling more than $1 billion for import financing.
