Budget 2020-21 to announce CEF for infra projects

The government has set up a Credit Enhancement Fund to support infrastructure projects that are rated below 'AA' to ensure their completion. The fund will provide credit enhancement to such projects, enabling them to raise loans at better rates while improving their viability, said official sources. The upcoming Union Budget 2020-21 is expected to make an announcement on this score. The Credit Enhancement can also be jointly run and managed by the government and private sector players on the lines of the National Investment and Infrastructure Fund. Right now, most of the infrastructure projects are rated below 'AA', which essentially means large institutions do not fund such projects. Through credit enhancement, a borrower or a bond issuer tries to improve its credit worthiness, which helps in lowering interest outgo and fund provides partial guarantee against loan losses to the lenders, enabling the borrower to enhance its credit ratings. Such a facility can be provided to projects that have strong viability and visibility but the companies executing them have a weak balance sheet or cash flow, which is usually the case for infra projects where revenues start accruing in later years.