period, banks are permitted to issue guarantees favouring other lending institutions in respect of infrastructure projects provided the bank issuing the guarantee takes a funded share in the project at least to the extent of five per cent of the project cost and undertakes normal credit appraisal, monitoring and follow up of the project. financing promoters ’ equity banks have been permitted to extend finance for funding promoter ’ s equity in cases where the proposal involves acquisition of share in an existing company engaged in implementing or operating an infrastructure project in india, subject to certain conditions. relaxation from capital market exposure in order to encourage lending by banks to the infrastructure, the promoters ’ shares in the spv of an infrastructure project pledged to the lending bank is permitted to be excluded from the banks ’ capital market exposure. permission to invest in unrated bonds in order to encourage banks to increase the flow of credit to infrastructure sector, banks are allowed to invest in unrated bonds of companies engaged in infrastructure activities within the ceiling of 10 per cent for unlisted non slr securities. relaxation in the classification of investments investment by banks in the long - term bonds issued by companies engaged in executing infrastructure projects and having a minimum residual maturity of seven years are allowed to be classified under the htm category, which means they need not be marked to market. relaxations relating to asset classification with effect from march 31, 2008, the infrastructure project accounts of banks were permitted to be classified as sub - standard if the date of commencement of commercial production extended beyond a period of two years ( as against 6 months in the case of other projects ) after the date of completion of the project, as originally envisaged. with effect from march 31, 2010, if an infrastructure project loan classified as “ standard asset ” is restructured any time during the above period of two years, it can be retained as a standard asset if the fresh date of commencement of operations is fixed within certain limits prescribed by the reserve bank, and provided the account continues to be serviced as per the restructured terms. bis central bankers ’ speeches certain relaxations as far as conditions specified for deriving asset classification benefits under our restructuring guidelines are made in respect of infrastructure exposure of banks i. e. in respect of repayment period of restructured advances and regarding tangible security. infrastructure debt funds realizing the potential of infrastructure debt funds in enhancing financing to the sector, reserve bank of india has, as a special case, permitted several prudential relaxations. sponsor bank of idf – nbfc has

with regard to an infrastructure project, it will greatly facilitate flow of funds to the projects and help in maintaining asset quality to the comfort of the lenders. we also need to develop new financial markets for municipal bonds to enable infrastructure financing at the grass root levels. we need to create depth, liquidity and vibrancy in the g - sec and corporate bond market so as to enable raising of finance and reduce dependence on the banking system. at the same time, there is a need to widen our investor base and offer adequate risk mitigating financial products, such as, cds. market players should also actively participate in such markets after the products have been introduced. a working group has been set up by the reserve bank recently to examine the issues and recommend measures to further improve the depth and breadth of the g - sec market. a vibrant g - sec market would facilitate growth of the corporate debt market. we also need to revisit the existing provisions of stamp duty governed by separate state government acts in respect of corporate bond transactions. concluding observations in conclusion i would like to mention that infrastructure projects in developing countries like india are perceived as highly vulnerable to risks which constrains financing. some of the notable risks that need to be reckoned are risks arising during the period of construction leading to time and cost over - runs, operational risks, market risks, interest rate risks, foreign exchange risks, payment risks, regulatory risks and political risks. at times, in the absence of proper risk mitigation mechanism, the costs of the projects tend to increase and such high level of risks cannot be traded off against high returns. the aim of the policy makers should be to reduce perceived risks by introducing greater policy clarity and, at the same time, providing an environment that will reassure investors. i am sure exciting times are ahead of us for infrastructure development in our country as we enter the year 2012 which promises to open more avenues for innovative planning, projects, policies, products and partnerships. i hope this international conference, which has several participants from within and outside the country, would throw up ideas and suggestions that would go a long way in addressing the issues confronting the financing of infrastructure in india. bis central bankers ’ speeches