In what could bolster the confidence of lenders in highway projects, they may be given the facility of a charge on the receivables. Currently, the lenders have a lien on the escrow account where the receivables are deposited but they hardly get to exercise the right. From the escrow account, the sovereign dues are paid first, followed by the cost of operation and management and National Highways Authority of India (NHAI) premium. The banks are the last to get access to the account and the funds get exhausted before their turn.
To make the situation easy for bankers, the finance ministry has told the ministry of roads, transport and highways (MORTH) to redefine the term ?Project Assets? in the model concession agreement (MCA) so as to provide a charge to the banks on the financial assets of a road project.
As per experts, such a move will help banks in treating their loans to the sector as ?secured?, a prerogative for which they, with the support of the government, is prodding the Reserve Bank of India.
According to sources, the move comes after the arguments presented by the department of financial services (DFS) that instances of the developer not submitting the entire toll collected to the escrow account have impacted repayments to banks.
The new facility for lenders in road projects, however, will come with a rider ? the charge would be available only to ensure that such receivables and deposits on realisation actually flow into the escrow account.
To bring in this relaxation Article 48.1 of the MCA will be amended. As per this article, the banks have ?a lien on the escrow account? and after the change in the definition banks will have a ?charge on the financial assets such as receivables?.
?Once the banks get a charge on the financial assets it will allow them to have an extra edge and they can further lend to the sector as it will virtually turn their loans as secured advances. Not just this, even developers will be befitted as they can get loans with much more ease from the lenders,? said Vishwas Udgirkar partner, infrastructure, at Deloitte.
Hobbled by delays cause by various sovereign clearances like land and forest, several road projects have failed to meet their deadlines, while some have missed revenue targets. This is part of a series of measures being planned by the government to ease the fund crunch in the sector and revive investor interest.