To address the non-availability of bank finance to port projects, the shipping ministry is planning a dedicated financial institution for the sector where massive capacity addition is being planned.
Idle money available with major port trusts would be used to float the institution, a government official told FE asking not to be named.
Commercial banks in the country are generally averse to funding port and maritime projects because their long-gestation period doesn’t allow a repayment schedule that suits the banks. On the funding of port projects, banks face an asset-liability mismatch. The proposed FI would be another player in the infrastructure financing segment, where there is already a special government company called India Infrastructure Finance Company operating with limited success. The government is also mulling a debt fund for the sector with a size of Rs 50,000 crore or thereabouts.
Investments to the tune of Rs 2.87 lakh crore by 2020 is envisaged in the port sector, the growth of which is key to the country’s ambition to increase in foreign trade manifold. The proposal would be mainly for the port sector, but would also look at lending to power, roads and telecom projects.
Among major commercial banks, country?s largest lender State Bank of India has the highest contribution to infrastructure with 17.64% of its total advances in December quarter going to the sector. Infra finance companies had a dismal performance. Of the total disbursement since its inception, L&T Infrastructure Finance Company has given only 4% for port development. In case of India Infrastructure Finance Company, just 2% of the overall sanctions upto December was for ports.
?Financial institutions are not focusing on ports as they lack the domain knowledge required for due diligence on the project. If the maritime financing institution is set up, the funding of port projects would be a lot quicker,? Indian Ports Association (IPA) managing director A Janardhana Rao said. IPA represents major port trusts of the country.
Rao said that 13 major ports that exist currently have a ?good sum? deposited in banks at interest rates of not more than 10%. ?If this money is utilised for port development, the trusts can earn a return of nearly 14%,? he added. Existing financial institutions said financing is not a problem for viable port projects. ?Our disbursements are skewed toward power sector because power has a lot of opportunities. Road and port sectors are still at a take-off stage. I think it will take three more years to really take off and reach a level of huge investment opportunity,? L&T Infra chief executive Suneet Maheshwari said. L&T Infrastructure Finance has contributed 35% of its total disbursement to power sector.
Infrastructure Development Finance Company senior director (project finance) A Balasubramanian said the new institution should play a supporting role to the existing financiers. ?The institution should be a venture capitalist and invest in common use projects at ports like breakwater and dredging, which have a long payback period and do not get proper financing. It should be insulated from commercial pressures,? he said.