BANGALORE: A consortium of 15 public sector banks and financial institutions led by IL&FS, IDBI, Canara Bank and India Infrastructure Finance Company Limited (IIFCL) has set up a Rs. 3,000 crore Pooled Municipal Debt Obligation (PMDO) facility to supplement government funding to municipal corporations and other urban local bodies (ULBs) for upgrading civic services under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

Pradeep Puri, CEO, National Urban Infrastructure Fund, IL&FS, said here on Friday that disbursal from the PMDO facility would be linked to reforms undertaken by the municipalities and ULBs relating to their accounting practices and levy of user fees. Municipalities and ULBs would have to open an escrow account facility from the revenues generated through levy of user fees to meet their debt service obligations. IL&FS would have the first charge on the escrow account.

Rs. 3,000 cr. corpus

Other lenders to the PMDO facility include LIC, Indian Bank, Syndicate Bank, Union Bank of India, Central Bank of India, Dena Bank, Corporation Bank and Oriental Bank of Commerce. The Rs. 3,000 crore corpus will have a tenure of 13 years, including a three-year moratorium and a ten-year repayment period and carries an interest rate of 9.50 per cent.

IL&FS is in discussions with multilateral agencies such as the World Bank and the Asian Development Bank (ADB) to participate and expand the corpus under the PMDO facility to meet the aggregate debt size of about Rs. 70,000 crore for implementing the JNNURM across the country.

Ravi Parthasarathy, Chairman, IL&FS, said it was in discussions with the Securities and Exchange Board of India (SEBI) as well as the Reserve Bank of India (RBI) to ensure that the fund was structured in a manner that it does not become a capital market exposure to protect the interests of participating banks.

Vinod Rai, Special Secretary, Banking, Union Ministry of Finance, underlined the need to put in place a couple of culture paradigms and discipline to ensure that municipalities and ULBs return the loan taken from the PMDO facility. "The entities receiving funds from the PMDO facility are not habituated to receiving debt, but are habituated to receiving grants. But, they have no option but to pay back from Day One," Mr. Rai said.

The PMDO will part finance a wide range of civic infrastructure assets as part of an overall plan of municipal corporations as approved under the JNNURM or other schemes of the government. The facility will be managed by IL&FS, which will also work with municipal corporations to ensure that the projects are appropriately prepared, tendered and implemented on an integrated basis.

The PMDO facility has been structured to ensure that municipal corporations can access these funds under a common grievance network.

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