Infrastructure lending may fall as banks, NBFCs fear bad debt

Written by Mithun Dasgupta | Kolkata | Updated: Sep 7 2013, 19:23pm hrs
Infra HighwayCredit growth to infrastructure may remain sluggish even though the Cabinet committee on investments recently cleared Rs 1.83 lakh crore worth of projects.
Lending to the infrastructure sector is likely to take a hit this fiscal with both banks and NBFCs increasingly concerned about bad loans emerging from the sector.

These concerns could mean that credit growth to infrastructure may remain sluggish even though the Cabinet committee on investments recently cleared Rs 1.83 lakh crore worth of projects.

The countrys largest lender, State Bank of India (SBI), said it is maintaining a cautious approach in financing to the infrastructure sector and was lending only to the major companies.

"There has been a slowdown perceived since the second half of last year in inflow of new projects. Given the current scenario of relatively high interest rates and systemic issues in power, telecom and road sectors, we expect the growth momentum to remain low key in FY14, SBI deputy managing director P Pradeep Kumar told FE.

SBI says it is being selective and lending only to the major players with adequate financial wherewithal, tie-ups, regulatory approvals and land. The caution comes against the backdrop of heavy restructuring already seen in the infrastructure portfolio. SBI has so far restructured as many as15 infrastructure projects with an aggregate outstanding of R3,507 crore. The bank said, as on date, seven accounts with outstanding of another R3,500 crore are in for restructuring.

Infra projects are being delayed due to issues like land acquisition, environmental clearances and fuel linkages leading to significant cost overruns.

For the banking industry as a whole, the gross NPAs and restructured standard advances for the infrastructure sector, together as a percentage of total advances to the sector, increased considerably from R12,190 crore (4.66%) as at the end of March, 2009, to R13,6970 crore (17.43%) as at the end of March 2013, according to RBI.

Banks are now concerned that any further lending to already stressed corporates in the infrastructure space could add to asset quality risks. "We are very cautious and generally discouraging further credit to infrastructure sector this fiscal, said UCO Bank CMD Arun Kaul.

Kaul said the Kolkata-based banks restructured loan book in power discoms (distribution companies) alone stood at R5,900 crore out of the total restructured portfolio of R9,717 crore as on June 30, 2013.

Another PSU lender, Syndicate Bank, also says it is conservative and generally not taking any interest in projects unless there is major involvement of the Central government.

"Banks indeed became very cautious on cash lending to the infra projects. As a result, credit to infrastructure projects in this financial year is definitely coming down, said Bhavik Damodar, partner, transaction services, KPMG, in India. Apart from concerns over existing projects, the lack of too many fresh projects will lead to a slowdown in infrastructure lending.

"Nothing is coming on the board, except road projects, said Arun Tiwari, executive director, Allahabad Bank. Even the road projects coming up are under PPP mode with participation from the government, added Tiwari.

Senior IDBI officials agreed that macro-level numbers of fresh infra projects were dwindling.

During 2012-13, outstanding bank credit to the infrastructure sector stood at R7,86,045 crore, with the major chunk coming from public sector banks. This apart, credit had also come into the sector via NBFCs. But this fiscal credit growth from the finance companies is not forthcoming either.

Hemant Kanoria, CMD of Srei Infrastructure Finance, said there was a slowdown in infra lending due to non-clarity and ambiguity in government policies.

"No funding is available for infrastructure projects either through debt or equity. We had urged the government to allow infra finance companies to get listed overseas, but it is still to take a decision, Kanoria told FE. He dubbed the Centres move to infra projects worth R1.83 lakh crore as a few drops in the ocean.

Roadblock

* SBI says it is cautious in financing to infrastructure sector and is lending only to the major companies

* Infra projects are being delayed on land acquisition, environmental clearances and fuel linkages issues leading to cost overruns

* Banks are concerned any further lending to the infrastructure space could add to asset quality risks