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IIFCL asks RBI to increase loan repayment period for infra projects

March 12, 2014

The infrastructure finance company has proposed to allow repayments of loans over 25-30 years

Remya Nair
IIFCL asks RBI to increase loan repayment period for infra projects

IDFs will refinance the existing debt of infrastructure companies, freeing up funds of banks for lending to new projects. Photo: Mint
New Delhi: India Infrastructure Finance Co. Ltd (IIFCL) has approached the Reserve Bank of India (RBI) with a proposal to increase the loan repayment period for infrastructure projects, especially road projects, to make them more viable.
The infrastructure finance company has proposed to allow repayments of loans over 25-30 years, compared with the current 10 years, to lessen the pressure on project developers who face fluctuations in cash flows.
“Project financing is slowing. It will soon come to a dead end. There is a need to extend the economic life of an asset so that the project becomes viable for promoters,” said S.B. Nayar, chairman and managing director of IIFCL, which has presented an approach paper to RBI on this issue.
The proposal was also discussed at a meeting of executives of state-run banks and financial institutions with the finance minister last week.
“When you have large projects and there is 75:25 debt-to-equity, it is impossible for the developers to pay back the loans in the next eight to 10 years,” he said.
Along with giving surplus in the hands of promoters, better private equity valuations for the project and lower user charges like tolls for projects, the risk for banks will also lessen, encouraging them to lend to this sector.
Banks are now the main source of funding for these projects.
Asset-liability mismatches and loan exposure limits to industries set by RBI have, however, made it difficult for banks to provide long-term funding.
The government has been looking at ways to make more funds available for the infrastructure sector, including setting up of infrastructure debt funds (IDFs).
IDFs will refinance the existing debt of infrastructure companies, freeing up funds of banks for lending to new projects. The government has also allowed IIFCL to continue as a sole lender in a project even after the lead lender has exited.
The Planning Commission has projected an investment of $1 trillion for infrastructure development during the 12th Five-Year Plan period ending March 2017.
India Ratings, in a report dated 30 January, had pointed out that only 20% of infrastructure loans were restructured till 31 March 2013 and the proportion could increase to 30-40% over the next two years.
“Restructuring of infrastructure loans will likely continue as the sector grapples with execution challenges and rising costs,” the report had said.
Samir Kanabar, tax partner at consultancy firm EY, said infrastructure projects, which are typically 25-30 years consortium contracts, need funding for a longer duration.
“At present, RBI has set many conditions on funding by banks. But any major relaxation by RBI, like a special carve out for infrastructure projects, given their long-term nature, will also depend on how it perceives the risks on the banks’ balance sheet,” he said.

Written by ITW Editor · Filed Under RBI-Reserve Bank of India 

Rajan may ask govt to help with infra exposure of PSBs

October 31, 2013

Subhomoy Bhattacharjee , Priyadarshi Siddhanta : New Delhi,

 

Reserve Bank of India Governor Raghuram Rajan is expected to ask the government for some clear interventions in the coal and road sector to stop the mounting of bad loans in the infrastructure sector with banks.

RBI has reason to be worried as the government plans to hold at least two major auctions within this fiscal for telecom spectrum and coal blocks.

But a clutch of leading public sector banks have informed the RBI they will not be able to lend to companies for these auctions since their infra lending has peaked.

The list includes State Bank of India, Bank of Baroda and others who informed Governor Rajan’s team about their problems in a meeting, last month.

The total exposure of the banking sector to the infrastructure sector is Rs 7,94,300 crore as on September 2013 (RBI data). The gross non-performing assets and restructured advances of public sector banks was almost 12 per cent (11.87) of their total loans.

The banks want some payments to come in from the power generation companies so that the level of their stiff exposure melts somewhat.

For the telecom auctions the banks will be expected to lay out about Rs 40,000 crore, while the sum for coal blocks is expected to be a bit lower.

Senior finance ministry officials have endorsed the concerns of the scheduled commercial banks that funds provided to many projects have hardened due to delays and court cases.

An informed source said RBI wants the finance ministry allow power producers with fuel supply agreements prior to 2009 to opt for buying some imported coal instead of their entire domestic quota. This will free up space for power producers coming in later to get domestic coal up to some extent and make them willing to begin repaying some of their outstanding loans to banks.

The RBI Governor had earlier as the chief economic adviser to the finance ministry suggested to the coal and power ministries to create similar incentives for thermal power plants.

Rajan’s proactive stand is different from the usual position taken by successive RBI governors who left the initiative in these matters to the government to sort out.

Infra exposure

* Total bank exposure to the

infrastructure sector is R7,94,300 crore as on September 2013

* The gross NPA and restructured advances of public sector banks was 11.87% of their total loans

* For telecom auctions banks will be expected to lay out about R40,000 crore, for coal blocks the amount is expected to be lower.

Source-http://www.indianexpress.com

Written by ITW Editor · Filed Under RBI-Reserve Bank of India