Bankers cautious about infra lending

Lenders say aggressive bidding of highway projects has put pressure on serviceability of loans.

Indias leading private and public sector banks have voiced concerns over lending to infrastructure projects that have received aggressive bids recently. The banks say that this was leading to a situation where high premiums were resulting in high cash flows which,in turn,has put pressure on serviceability of loans. Bankers also cited that the concession period and loan tenure was increasing largely on the back of bidders quoting high premiums or revenue share to the government.

Speaking at the Public Private Partnership (PPP) conference on roads today,managing director and CEO,ICICI Bank,Chanda Kochhar said that since March,2010,the RBI had raised the repo rates by as much as 300 basis points which has pushed lending rates upwards while projects have a fixed rate of return.

There is also a need to align annual premium of the projects with the cash flow, she said.

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Pratip Chaudhuri,Chairman,State Bank of India,said,The high premiums they quote also leads to lengthening of the loan tenure, indicating that banks are likely to be careful while financing such projects.

However,officials in the ministry of roads,transport and highways maintained that the robust bidding in the past few projects was largely on account of the growth expected in traffic and the hope that the Indian economy would register more than 9 per cent growth in the next five years.

Further,the bankers said that there was no standard method for project viability assessment especially with respect to traffic studies. Banks also face problems as there are leakages in toll collection,Kochhar said.

About 15 projects received premiums far in excess of the estimates with the variation being as much 5,000 per cent in the case of the Ahmedabad-Vadodara highway. The government saved as much as Rs 15,000 crore on these projects,according to officials.

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In order to lend effectively to the sector,the State Bank chairman said that banks should be permitted to float infrastructure bonds and the government could consider the possibility of providing refinance facility to commercial banks for infrastructure loans as it has done for other sectors such as small and medium enterprises.

The ICICI chief also suggested that the government should relax the reserve ratio and liquidity norms for long maturity liabilities apart from considering the priority sector lending status for infrastructure.

Other issues raised in the conference included,allowing insurance and pension funds to invest in infrastructure,relaxing external commercial borrowing guidelines to allow post construction financing,creating a single window clearance system at the National Highways Authority of India and introducing electronic toll collection in line with the recommendations of Nandan Nilekani.