Long Term Project Finance Mechanism: Need For A Re-look

 The long-term Project Finance for infrastructure and industrial sectors essentially involves a limited recourse to financial structure, since project debt and equity utilized for constructing the project are paid back from the cash flows generated by the project itself. This implies financial engineering of lending, solely against the cash flows of the project, not relying upon any other securities. A detailed evaluation and thorough analysis of the various risks involved are undertaken and the mitigation steps are identified for the prospective lenders, promoters, and other parties involved. The term loans for large projects are generally repayable in up to 20-25 years depending upon the economic life of the project, after the initial moratorium during the gestation period. The current unprecedented situation arising out of covid-19 disruptions and responses from the regulators has provided us with a lot of learning inputs, necessitating a re-look at the funding mechanism, particularly for the Long Term Project Finance.

 

The importance of the requisite relaxations and flexibility in long-term project Finance is now being realized on the lines of the mechanism that was popularly called the 5 by 25 scheme. Drawing inferences from the line of action and approach adopted by the RBI, to deal with the covid-19 situations, now there seems to be a need to have a RE-LOOK at the Long term Project Finance mechanism.























The CURRENT PANDEMIC - Lessons Learnt

 

The covid-19 pandemic has forced the governments and Central Banks across all the economies to provide economic stimuli and regulatory forbearance to deal with the unprecedented situation. In India too, besides the massive government economic stimulus of over 20 lac crores, the Reserve Bank of India took several proactive steps with agility to cope with the adverse economic scenario.


Source URL: - https://www.resurgentindia.com/long-term-project-finance-mechanism-need-for-a-relook

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