TAKE OUT FINANCING

                                                         Take Out Financing

 

  The development of the infrastructure sector is important for the development of the country. In this sector, roads, bridges, railways, ports, airports, inland waterways and other transportation projects, power generation, urban transport systems, water supply, sewerage schemes, solid waste management, gas pipelines, international convention centers, tourism projects, cold storage chains., godowns etc. There are three major aspects to be considered while financing the development of such infrastructure sectors.

1. A huge amount of investment is required to build such projects.

2. Gestation period of projects is very long.

3. A very big risk in the early stage of projects, which is that project Decreases after initiation.

  These three factors limit the financing of the structural sector. The investment in the project is so large that only one or two such projects can fit within the exposure limits of the banks. Second, banks collect money in the form of deposits and lend out of it. Although the maximum term of deposits is usually five years, the average maturity year is less than two years. In short, the duration of the source of 'deposits' accumulated with banks is short, but the financing required for infrastructure projects is 15 to 20 years! The reason is that if banks give loans for such a long term, there may be an imbalance between the term of their deposits and the term of the loan, and there may be a fear of bankruptcy of the banks. So generally banks provide short term loans. Moreover, the risk is high until the infrastructure project is completed and operational. Banks are not necessarily financially capable of taking that risk. A large share of savings in the economy is deposited with banks and is not diverted to the infrastructure sector in the form of loans due to the above three reasons. Hence the infrastructure sector and alternatively.

    A Document: Economic growth slows down. The solution for adequate financing of the infrastructure sector and it should be done through banks and financial institutions is 'Take-out financing'!

Meaning:

         Transfer financing This type of financing involves three parties.

1. The borrower, who is going to set up the infrastructure project.

2. Lending bank or financial institution.

3. Taking over Institution after a fixed period of loan granted by the bank.

 

    A borrower who wants to set up an infrastructure project proposes to the bank for a large loan with a tenure of 15/20 years. The bank scrutinizes the proposal and checks the viability of the project. Ensures that the project is technically, financially feasible in terms of manpower availability. The bank then deci…

   A Document: When the project starts, when the project reaches a certain capacity, etc.) is acquired. If the loan is to be classified after fulfillment of such conditions, there may be uncertainty in it. Of course, all these aspects are mentioned in the initial collective agreement of the three parties.

                           Advantages andlimitations of transfer financing:

   Banks can make loanable money available for long-term loans. As it is certain that after 5 years such loans will be taken by another financial institution, the banks' debt-liability imbalance does not occur. The large financing requirement of the infrastructure sector is met. If the project goes well, banks also have the option of extending their loan after 5 years.

 

   The central bank imposes 'risk-capital' ratio norms (norms) for lending to both lending institutions, so the interest rates on loans are likely to increase. Generally, infrastructure projects are not completed on time and within the proposed investment amount, which can lead to disputes between the two lending institutions.

           In India Infrastructure Development Finance Corporation Ltd. (IDFCL) for

           India Infrastructure Finance Company Ltd. (IIFCL)

   Are two financial institutions engaged in transfer financing. Although take-out financing started in India in the late 1990s, its use is still very limited. Although this method of financing the infrastructure sector is useful, it is also risky.