The government has a clear vision for infrastructure investments in the medium to long term. However, in the short term, there are certain hurdles which the government is aware of and is consciously trying to address.
Although the government has clear vision for infrastructure investment in the medium to long term, there remains certain hurdles for private sector investment in infrastructure in the short term, opines Hemant Kanoria, chairman, Srei Infrastructure Finance. In an interview with Mithun Dasgupta, Kanoria says the Budget proposal to extend the partial credit guarantee scheme will not fully solve the liquidity problem for NBFCs. Excerpts…
The government has said it is clear about its commitment towards infrastructure investment. But, do you think that the Budget has failed to encourage private sector investment in infrastructure?
The government has a clear vision for infrastructure investments in the medium to long term. However, in the short term, there are certain hurdles which the government is aware of and is consciously trying to address. We need to find a solution to the current liquidity conundrum and revive the credit flow to the economy. We are hoping that the government will soon make announcements to address these issues. That will encourage private sector investment in the infrastructure sector. Infrastructure financing and investments entail a long-term perspective with absolute clarity on viability, liquidity, dispute redressal and appropriate exit timing. The confidence of investors and financial institutions/banks get reinforced if all the above are functioning in sync. However, at this juncture, there are some gaps.
Did the Budget address some of the concerns of the NBFC sector, especially the expansion of the partial credit guarantee scheme?
While the Budget captures the government’s medium- to long-term vision, we hope that more measures to address the liquidity issue in the short term will be announced soon. In my opinion, the partial credit guarantee scheme will not fully solve the liquidity problem. Loan portfolios as on March 31, 2019 are only eligible for the partial credit guarantee scheme. That deadline needs to be extended further and new loans should be brought under the coverage of this scheme.
What is your opinion on the move to include more NBFCs into the net of the SARFAESI Act?
As per the Budget of 2015-16, only NBFCs registered with the Reserve Bank of India (RBI) and with a minimum asset size Rs 500 crore were eligible to take the SARFAESI route for asset recovery, provided the loan size was a minimum Rs 1 crore. Such conditions had excluded many NBFCs from taking this route. In this year’s Budget, the minimum asset size condition has been brought down to Rs 100 crore and the minimum loan size has been brought down to Rs 50 lakh from Rs. 1 crore. This effectively allows more number of NBFCs to avail the SARFAESI route. The move is a welcome step as it is expected to improve recovery of loans.
Do you expect the credit flow to revive in the near term? If not, why?
We need to encourage banks to restart lending. At this juncture, bankers are apprehensive in lending due to stringent guidelines and fear of an account going bad. When the going gets tough for borrowers, lenders must offer support through pragmatic resolution plans. If the customer is errant, the lender must initiate appropriate legal actions; but such instances are rare and probably account for only 1-2%. Hence, we need to change our mindset; majority in the system do not commit fraud and we have to build a relationship of trust. As lenders, when we support borrowers during the down cycle, then our money is safe, as the borrower is able to come out of the adverse situation. The regulator should consider reviewing the existing NPL norms in view of the present economic situation.
Coming to Srei, which will be your focus area for growth?
For last few years, our focus has been to grow our equipment finance portfolio. We are seeing a silent recovery in demand for equipment, which had fallen by 25-30% in the last couple of years, especially since the IL&FS episode. The government is seized of the slowdown in infrastructure investments and the economy. So, we are sure that the demand will pick up soon with awarding of new EPC contracts.
Also, Srei’s board, in 2014-15, had taken a decision that it will gradually reduce the infrastructure project financing portfolio over the years due to increased risks in the sector. We are the veterans in infrastructure financing sector, and it will be sad if we do not make a comeback at an appropriate time.