WB okays $4.3 bn loan for infrastructure and banks

NEW DELHI: The World Bank on Wednesday sanctioned four loans aggregating $4.3 billion to support India’s economic recovery by strengthening

its state-run banks and funding infrastructure projects. The bank said the loans would support the country’s economic stimulus measures by channeling resources into infrastructure, power and irrigation sectors.

“This is a crucial time to support Indian economic recovery,” World Bank country director for India Roberto Zagha told reporters in a video conference. “Despite the uncertainty about the pace of economic recovery, current trends suggest a growth rate of between 5.5% and 6.5% for 2009-10 is realistic,” he said.

Of the total sanctioned amount, $2 billion will go to the Centre for enhancing the capital base of public sector banks, $1.195 billion to the India Infrastructure Finance Company (IIFCL), $1 billion to PowerGrid Corporation and $150 million to Andhra Pradesh for a rural water supply and sanitation project, the World Bank said here.

The government will use the $2 billion for the banking sector to ensure that shortage of capital does not constrain the banks’ ability to lend. The World Bank denied media reports that the loan has pre-conditions such as asking the government to reduce concessional lending to certain priority sectors.

“No conditions are imposed on public sector banks. This is not a loan for the recapitalisation of banks. It provides budgetary support to the government of India. As with all development policy lending, support to the borrower is predicated upon the maintenance of an appropriate macroeconomic framework, and an effective medium-term strategy for economic growth and poverty reduction,” the World Bank said.