Concept of Project Finance in India

Project Finance is one of the key sources to raise funds or finances for projects related to manufacturing or industrial areas. It helps in the expansion of industries and continuous development and growth of the same.

Project Finance can be a challenging area for new businesses. There are two types of categories in which it has been divided namely; Equity Capital and Debt Capital. To make the project finances more viable, the project manager usually uses a combination of the two categories for making it more sustainable in the long run. There are various methods of project financing which are as follows-

1.       Bills Discounting

2.       Commercial Banks

3.       Debenture Capital

4.       Seed Capital

5.       Share capital – equity capital and preference capital.

6.       Subsidies drawn-out by the Central as well as State Government

7.       Term loans

Also Read: What is Project Finance in India

 

Different Stages of Funding in Project Finance:

The three stages in the whole project finance project that must be completed are as follows-

1.       Pre- finance stage: The following are included are as follows

(a)    Identification of the project or project area

(b)   Risk identification and minimizing the risk

(c)    Checking the technical and the financial feasibility of the project finance

2.       Financing stage: The following are to be followed in this stage

(a)    Arranging the loan or debt or equity funds as per the requirement

(b)   Making proper negotiations and syndications for the finances

(c)    Documentation work and checking the policies and regulatory provisions related to the commencement of the project

(d)   Receiving the payment or funds

3.       Post Financing: The final stage of Project Finance involves

(a)    Reviewing the project at regular intervals. Proper monitoring checks must be implemented by the project manager.

(b)   Closing or ending the project

(c)    Monitoring and making loan or fund repayments

 

The company utilizing the project finance taken in the form of loans, debt or equity fund is required to repay the same in the provided tenure. The project must be monitored by the creditors, investors and the company carrying on the project. Control measures must be taken by the company.

 

Framework and Guidelines for Project Finance in India:

The list of major contracts for project finance consist the following-

1.       Concession agreement

2.       Construction Contract

3.       Development Management Agreement

4.       Licenses wherever required

5.        Mineral lease (if required)

6.       Operating Agreement

7.       Sales Agreement

8.       Supply Agreement

9.       Any other major contracts depending upon the accepted structure that may occur in any specific project finance in India.

 

The finance borrower is required to obtain certain clearances both statutory and non-statutory from the concerned boards and departments. These are essential for the projects finance areas such as-

1.       Company Registration

2.       Financing

3.       Land Availability or concessions etc.

4.       Clearances for pollution, environment and forest areas

5.       Techno-economic clearance

 

While making an application to the banks or financial institutions, the project promoter is required to submit the following documents and its copies-

1.       In case of a company Articles of Association (AOA)

2.       Copy of allotment letter of property or plot

3.       Sale deed in good turn of the plot’s borrower or buyer

4.       Detailed project plan approved by the local authorities or body

5.       Partnership deed