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Saturday, Jun 22, 2002

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Banks cool to SPV proposal for infrastructure projects

Rukmani Vishwanath

MUMBAI, June 21

PUBLIC sector banks appear cool to the suggestion of setting up of special purpose vehicles (SPVs) for financing infrastructure projects.

Recently, the Finance Minister, Mr Yashwant Sinha, had asked banks and financial institutions to set up SPVs to fund projects worth Rs 50,000 crore over the next four to five years.

However, bankers are said to be circumspect about the viability of some of these projects. Some of the urban infrastructure projects don't seem particularly cost-effective, said a senior official with a leading public sector bank.

"Whatever subsidies the government may offer, the cash flows may not be adequate to cover the costs. Government guarantees are not substitutes for cash flows'', he said.

Some bankers maintain, that as per RBI regulations, banks do not need to finance projects that can be funded through budgetary allocations. The SPV route is to get around that clause.

"We will wait to see how IDBI moves and then take a view on what to do. IDBI has better political clout in influencing government policy in this area. They may ask for a similar pattern like the NHAI (National Highway Authority of India) project where the payments are assured'', said a banker.

The NHAI's Golden Quadrilateral project, along the East-West and North-South corridors, is popular among banks as it offers assured payments.'' Most banks have been vying for the NHAI project as there have been no problems with the payment of bills which are done on a half yearly basis'', said a banker.

Meanwhile, State Bank of India, the Life Insurance Corporation of India and other FIs have agreed to fund these projects over a period of four to five years. Public sector banks have also been called upon to make contributions to the Rs 1,000-crore equity fund to be set up for providing equity investment for infrastructure projects.

"Funding infrastructure projects is a big responsibility. While banks and FIs must lend their support to strengthen this sector, they must engage in due diligence for each project so that they are not strapped with bad loans'', said another banker.

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