India's Infrastructure Development Finance Company Ltd (IDFC) has signed a memorandum of understanding (MoU) with Bank of Baroda with the aim of enhancing finance and banking services to support the development of India's infrastructure.

Letters of credit (L/Cs), treasury products, trade finance products, advisory services, as well as financial and performance guarantees are amongst the products the partners say they will be developing for clients involved in infrastructure projects.

Debt financing tool

Under the MoU, the parties say they will cooperate to find new processes to speed up debt financing to enable quicker financial closure for infrastructure projects.

The use of L/Cs in India's private sector infrastructure financing has had a chequered history. Disputes involving central and state government guaranteed L/Cs featured prominently in the wake of the financial collapse of the one time Enron-led privately operated Dabhol Power Company. (DC World News, 11 May 2001).

Last week, however, it emerged that India's state electricity boards may be asked to open L/Cs in favour of independent power producers as the country looks towards the private sector once more to provide electricity (DC World News, 17 February 2006).

IDFC role

IDFC was established in 1996 as a specialised financial intermediary to encourage private capital in commercially viable Indian infrastructure projects. It aims to complement existing institutions undertaking infrastructure finance with a focus on strengthening market mechanisms where these are evolving or have failed to develop.

The company also performs a policy advisory role by assisting central and state governments prepare roadmaps for reform initiatives and develop regulatory frameworks.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.