The finance ministry is trying to perform a balancing act since officials said credit off-take from banks could be affected once the SPV was in place.
"It starts with a Rs 10,000-crore corpus but it could go up to Rs 60,000-Rs 70,000 crore (Rs 600 to Rs 700 billion) over the next four years," said an official.
Officials said the government was also examining whether foreign borrowings would help the SPV extend cheaper loans. Indian Railways Finance Corporation recently raised foreign currency loans at around 3 per cent, including the hedging cost.
With a government guarantee, the cost of debt will be lower and if it is foreign debt, the cost comes further down. But there are concerns over who would pocket the margin.
"If there is a margin available to the managers, then the purpose of offering long-tenure low-cost funds for infrastructure projects is defeated," an official said.
At least three financial sector companies IDBI Ltd, Infrastructure Development Finance Company and ICICI Securities have plans for managing the SPV.
The ministry is also in a dilemma over the appraisal of the project and sanctioning of loans. The government had earlier intended to let the inter-institutional group, headed by the State Bank of India handle project appraisal while the funds were to be made available by the SPV.
There is a fear that in the event of the same agencies extending loans and managing the SPV ,there can be a conflict of interests. The IIG consists of IDFC, IDBI, Life Insurance Corporation and ICICI Bank.
The government was earlier contemplating drawing a small pool of executives from banks and financial institutions to manage the SPV.
The finance ministry proposes to move a Cabinet note shortly to put the SPV into operation.
Finding answers
The finance ministry is trying to do a balancing act since officials said credit off-take from banks could be affected once the SPV was in place.
Government was also examining whether foreign borrowings would help the SPV extend cheaper loans.
