To overcome asset liability mismatch constraints, the bankers have demanded the exemption of the infrastructure bonds from capital gains U/S 54EA and investments U/S 88 of the I-T Act. To enhance the ability of banks to provide medium-term financing to infrastructure projects, banks could be permitted to issue senior bonds with maturity lower than five years. The RBI should consider providing cash reserve ratio (CRR) and statutory liquidity ratio (SLR) exemption to infrastructure bonds floated by banks.
Primary constraints for banks in financing infrastructure arises from their funding structure and applicable liquidity ratios. Bank resources are mainly in the form of deposits, which are typically of maturities up to three years. On the other hand, infrastructure sector requires long-term financing for a period extending beyond 15 years. Apart from asset-liability mismatch (ALM), interest rate risk and pricing are also key issues.
S Sridhar, CMD, Central Bank of India, said, In absence of any relevant mechanism, we have to reset our rates for infra lending on regular basis, which was not the fair way of lending to the sector. Also, we are looking at raising money through debts in foreign currency that were available at a cheaper cost post global slump.
SK Goel, CMD, Uco Bank, feel the banks are unable to mobilise deposits for infra lending. Hence we want to raise long-term bonds so as to avoid the ALM that we are face at present. The nature of the bond can either be cumulative or regular interest one. We have opened a syndicate cell with our bank so as to facilitate big ticket infra loans. Currently, we are having an exposure of Rs 8,000 crore to the sector which we plan to raise to Rs 10,000 crore by the end of the fiscal. Hence, we want to recruit experts in scale IV and V for the purpose.
M Narendra, executive director, Bank of India said that infra lending would comprise 15% of his banks total credit as against the existing 10% level. We want to adopt the route of takeout financing and securitisation & assignment of debt to achieve this goal.
IBA deputy CEO K Unnikrishnan also feels the need of large amount of funds, long gestation period and ALM are some of the basic problems being faced by the banks.
RBI has permitted the banks to go for infra bonds to the extent of infra lending with a maturity period beyond five years. Also, the RBI has asked them to raise bonds and go for debt. Still, no bank is raising capital in this way since they will have to give an interest rate of 9% to their investors. Then things like CRR & SLR come in the way, which compel them to charge an interest rate of 11-12% while lending to infra projects. The bankers had raised this issue during their meeting with finance minister Pranab Mukherjee in June.
IBA earlier had formed a special committee to examine the set of problems faced by various banks in funding core sector. The report of the internal working group of IBA was submitted during its managing committee meeting held in Mumbai on Tuesday.
The report has outlined that banks should be permitted to go for takeout financing in a big way and fiscal incentive should be provided to the banks. The resource mobilisation for the infra funding must be exempted from relevant Income Tax Act, so as to make money cheaper for infra financing.
On fiscal side, capital gains should be made attractive to investors through fiscal measures, the report said.
Currently, two kinds prudential limits are in force group and single exposure. In single exposure, the banks are permitted to fund upto 25% while for groups, banks can take leverage of up to 50%. But bankers feel that it is not enough keeping in view the ever increasing demands of credit from the sector which is also required by the governments increasing focus on infra spending. As per an estimate, total exposure of the banks to the sector is valued at Rs 1,30,000 crore.