Shifting Financing of Infrastructure in India from Banks to Bonds

Abstract

The Indian bond market traditionally has had limited participation in financing infrastructure projects in India. An analysis of infrastructure financing in India from various sources indicates that infrastructure projects in India have been funded primarily by commercial banks and financial institutions, with a negligible contribution from bond markets. Commercial banks continue to remain invested in infrastructure projects through construction and over the longer term in operational phases of infrastructure public–private partnership projects. This article explores some of the reasons for low participation by institutional investors in Indian infrastructure assets through market instruments and provides policy and institutional recommendations for shifting the financing of infrastructure in India from banks to bonds—including the need to offer focused credit enhancement solutions for operational infrastructure projects.