It is, therefore, obvious that the Reserve Bank of India (RBI) could flag off concerns at this higher level of concentration towards these two sectors.
RBI deputy governor R Gandhi had expressed concern at the high exposure. We are very much concerned about further exposure beyond these levels, Gandhi had said at a recent event last week.
Given the troubles brewing in the infrastructure and opacity in the real estate transactions, banks are doubly cautious. Though some are moderating loan disbursements for the realty projects, for infrastructure projects, banks are still extending loans owing to the governments thrust and the absence of other financing options. Gandhi added that banks cannot put all their eggs in one basket and other sources of finance for infrastructure are critical.
VR Iyer, the chairman and managing director of Bank of India, concurred there is a high concentration risk that the banks are facing.
The reform expected from the new government should help. But one has to keep in mind the concentration risk, said Iyer.
Credit to infrastructure grew at near 50% in 2009-10 and had clocked double-digit growth every financial year thereafter. With projects getting stuck due to lack of clearances and policy logjam, the credit growth to the sector slowed to 10.9% y-o-y in 2013-14, from as high as 38% in 2010-11.
The bulk of financing is still bank-driven. Even RBI has relaxed several regulations to boost credit to the infrastructure sector. The latest is allowing banks to raise money through long-term infra bonds without the cost of maintaining reserve ratios that are otherwise applicable to bonds.
Iyer said that even at thebalance sheet growth rate of 15-18% y-o-y, banks cannot meet the financing needs of infrastructure sector. We need other modes of financing, we need to develop the bond market, she said. It is estimated that India needs a $1-trillion investment in the infrastructure over the next five years. It is also clear that RBI is not keen on relaxing more norms.
Bankers are cautious on exposure to the real estate sector. Punjab National Bank is the banks that have been moderating exposure to real estate. We have been moderating our real estate exposure over the last two-three years. Whatever exposure we have to the real estate sector is now under lease, rental discounting loans, said KR Kamath, chairman and managing director of the bank.