India today signed agreements with the World Bank under which the latter will provide loans totalling $4.2 billion for projects in the infrastructure, banking and power sectors.

The agreements were signed by the representatives of the government, India Infrastructure Finance Co Ltd, Power Grid Corporation and the World Bank.

The World Bank will provide total funding to the tune of $1.2 billion to IIFCL. Of this, $1.195 billion will come as long-term IBRD loan to finance infrastructure projects while $5 million will come as grant for capacity building of IIFCL.

The amount is expected to be disbursed by September 2015. IBRD loan is a variable spread loan based on six-monthly LIBOR. It will have a duration of 28 years and a grace of 7.5 years.

IBRD will also provide $2 billion as banking sector support loan, which is part of the series of measures to contain the slowdown and stimulate the economy by assisting public sector banks to keep credit flowing.

Keeping the growth momentum will help contain the adverse effects of the slowdown on employment and poverty, broaden financial inclusion and help production and trade sectors.

While India's banking sector is sound, stable and well regulated and the PSU banks are well capitalised with good asset quality and profitability, the government wants these banks to maintain credit expansion and help contain adverse effects of global slowdown.

The proposed loan will meet this requirement partially through budgetary support to the Government of India, capital infusion during 2009-2011.

The World Bank loan is a variable spread loan based on six-monthly LIBOR and has a tenure of 30 years, including a grace period of five years. The funds will be used to capitalise public sector banks over the next two years to enable them meet the credit requirement of the economy, including the agriculture sector, MSME sector, weaker sections of population, etc.

The specifics of the amount, mode of capitalisation and other terms of capital infusion in individual banks would be decided by the government in consultation with the banks.

The World Bank will give another $1 billion in loans to the fifth 'Power System Development Project', a scheme aimed at strengthening the transmission system and improving the reliablilty of power exchange between the regions and states. The total cost of the project is $1.562 billion. 

The project involves construction five transmission schemes:

a.    System strengthening in the western region for Sasan Ultra Mega Power Plant;

b. System strengthening in the northern regions for Sasan and Mundra ultra mega power plants;

c. System strengthening in the western regions for Mundra ultra mega power plant;

d. System strengthening in the southern and western regions for Krishnapatnam ultra mega power plant; and

e. Transmission system for the south-west interconnection

The project is expected to be completed by 30 June 2015.