SBI's Project Finance Strategic Business Unit: A Comprehensive Financial Solution

Project Finance Strategic Business Unit (PFSBU) is a one-stop-shop for financial services for new projects, as well as expansion, diversification, and modernisation of existing projects in infrastructure and non-infrastructure sectors. The State Bank of India (SBI) is the largest bank in India and brings significant expertise in engineering financial packages that address complex financial requirements.

Expertise

  • SBI brings considerable expertise in engineering financial packages that address complex financial requirements. PFSBU is well equipped to provide a bouquet of structured financial solutions with the support of the largest Treasury in India (i.e. SBI), International Division of SBI, SBI Capital Markets Limited and SBICAP Trustee Company Limited. The global presence and well-spread domestic branch network of SBI ensures that the delivery of project-specific financial needs are taken care of.

Lead Role in Many Projects

  • PFSBU plays a lead role in many projects, such as Security Agent, Monitoring/TRA agent, etc. The synergy between PFSBU and SBI Capital Markets (SBI caps) includes the exchange of leads, joint attempts in bidding for projects and joint syndication, etc. In a way, the two institutions are complementary to each other.

What is Project Finance?

  • Project finance is the funding of long-term infrastructure, industrial projects, and public services using a non-recourse or limited recourse financial structure.
  • The debt and equity used to finance the project are paid back from the cash flow generated by the project. Project financing is a loan structure that relies primarily on the project’s cash flow for repayment, with the project’s assets, rights, and interests held as secondary collateral.

Key Takeaways

  • Project finance involves the public funding of infrastructure and other long-term, capital-intensive projects.
  • This often utilizes a non-recourse or limited recourse financial structure.
  • Project debt is typically held in a sufficient minority subsidiary not consolidated on the balance sheet of the respective shareholders (i.e., it is an off-balance sheet item).
  • In a non-recourse loan, the borrower cannot be pursued for any additional payment beyond the seizure of the asset.

Understanding Project Finance

  • The project finance structure for a Build, Operate, and Transfer (BOT) project includes multiple key elements. Project finance for BOT projects generally includes a Special Purpose Vehicle (SPV).
  • The company’s sole activity is carrying out the project by subcontracting most aspects through construction and operations contracts. Because there is no revenue stream during the construction phase of new-build projects, debt service only occurs during the operations phase.

Synopsis

Project finance is especially attractive to the private sector because companies can fund major projects off-balance sheet (OBS). PFSBU of SBI is a one-stop-shop for financial services and plays a lead role in many projects, providing project-specific financial needs with the support of the largest Treasury in India and international division of SBI.

Written by IAS POINT

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