Infrastructure contributes to economic development both by increasing productivity and by providing amenities which enhance the quality of life. The Planning Commission has estimated that investment in infrastructure—defined broadly to include road, rail, air and water transport, electric power, telecommunications, water supply and irrigation—will need to be of the order of about 14,50,000 cr or US$320 bn during the 11^th Five Year Plan period. This is a requirement of immense magnitude. Not all of this investment can come from public resources. Reports about the Reserve Bank of India (RBI) asking banks to take on more exposure in financing infrastructure projects should prima facie be welcomed. The RBI's move is to garner the surplus in the banking sector and utilize it for building infrastructure assets. Banks' participation in infrastructure finance needs is to be preceded by a strong understanding of the risk return characteristics of the project per se, as well as of the risk mitigating and risk sharing techniques built into the financing structure. Most of this new investment is structured as project financing which deviates from traditional corporate finance. It is imperative, therefore that banks and financial institutions should have the requisite expertise for appraising the viability and bankability of projects. In this regard, the study explains the salient issues of project appraisal involved in infrastructure financing.

Infrastructure is an umbrella term for the manifold activities referred to as `social overhead capital' by economists like Paul Rosenstein-Rodan, Ragan Nurkse and Albert Hirschman. The India Infrastructure Report, 1996, defined infrastructure as: "the physical framework of facilities through which goods and services are provided to the public". Infrastructure linkage to the economy is multiple and complex because it directly affects production and consumption, creates negative and positive spill-over effects (externalities) and involves large flow of expenditure. The Reserve Bank of India (RBI) in its Circular dated November 30, 2007 (DBOD No. BP.BC.52/21.04.048/2007-08), defined Infrastructure as: "Developing or developing and operating or developing, operating and maintaining an infrastructure facility in energy, logistics and transportation, telecom, urban and industrial infrastructure, agro processing, construction for storage of agro products, schools and hospitals, pipelines for oil, petroleum and gas, water and sanitation." This definition includes both physical and social infrastructure services. The present paper however, focuses only on the issues of financing of the key physical infrastructure services by commercial banks.

The 11^th Five Year Plan envisages stepping up of the gross capital formation in infrastructure from 5% of GDP in 2006-07 to 9% by the end of the plan period in 2011-12, which could be critical for achieving 9% growth. It has estimated an investment requirement of US$502.88 bn ( 20,11,521 cr) in infrastructure, around 30% of which is expected to be financed by the private sector. Similar estimates were made by the Deepak Parekh Committee Report, May 2007. There is a consensus among government policy makers and a growing realization by the public for the need of an increased Public-Private Partnership (PPP) in infrastructure projects, and of the necessity of commercialization of infrastructure services. During the last 10 years, infrastructure was being developed through increasing investments by the private sector on a commercial basis under the `private ownership and operation' approach (Ahya and Sheth, 2005). Under this option, the private entity not only operates the infrastructure, but also owns the allied assets. Various approaches can assume any of the following arrangements, the most important among them being: Build Operate Transfer (BOT); Build Own Operate (BOO); Build Own Operate Transfer (BOOT); Build Operate Lease Transfer (BOLT), Management Contract (MC) and Service Contract (MC).

Infrastructure Journal, Indian Banks, Public Resources, Banking Sector, Commercial Banks, Infrastructure Projects, Gross Domestic Product, GDP, Corporate Financing, Project Financing Method, Credit Scoring Mechanism, Risk Assessment, Operational Risk, Organizational Structures, Infrastructure Development, Corporate Bond Market, Strategic Business Units, Indian Economy.