Takeout finance is essentially a mechanism designed to enable banks/lenders to avoid asset liability mismatch that may arise out of extending long tenor loans to infrastructure projects. Under this arrangement, banks that extend credit facility to infrastructure projects enter into an arrangement with a financial institution for transferring the loan outstanding in the banks' books to the books of the financial institution who take out the loan.
Subsequent to the announcement in the Union Budget of 2010-11, the Government entrusted India Infrastructure Finance Company Ltd (IIFCL) with the task of introducing the Takeout Finance Schemes (TFS).
The scheme enhances the availability of long tenor debt finance for infrastructure projects, enables availability of cheaper cost of finance available for the borrower, addresses sectoral / group / single party exposure issues of banks / lenders who are providing long-term debt financing to infrastructure projects, addresses asset-liability mismatch of banks arising out of financing infrastructure projects and also to free up capital for financing new projects.
Earlier IIFCL could take out debt up to 20 per cent of the total project cost. With this MoU in place, the take out of debt up to 50 per cent of the total project cost will be possible. This will facilitate banks to take more exposure in new projects, which in turn will help bridge the gap in infrastructure financing to a great extent.