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C. Shivkumar

Banking sources said that absence of exit options was one of the major reasons for the slow growth in credit offtake and the consequent low credit deposit ratios.

Bangalore , Sept. 8

PUBLIC sector banks have begun limiting exposure to infrastructure projects due to non-availability of exit options including support in the form of takeout financing.

Among the exit options that were initially envisaged was securitisation of infrastructure loans and subsequently listing in the National Stock Exchange.

Bankers said that there was very little progress on this front. The outstanding securitisation that has been done for projects was less than Rs 5,000 crore. And the only loans that have taken off have been lending to projects promoted by the Central utilities.

Exit options are essential especially in view of the recent trends in the build up of liabilities in the banking system which were mostly in the nature of short-term time deposits.

"Lending to long gestation projects under such circumstances would be risking big asset liability mismatches," according to Mr K.M. Shet, Executive Director of Syndicate Bank.

Banking sources said that absence of these exit options was one of the major reasons for the slow growth in credit offtake and the consequent low credit deposit ratios.

Credit offtake has fallen by about Rs 1,900 crore during the period from March-end this year to August. Deposits accretion, on the other hand, has risen.

Bank deposits, especially time deposits, have gone up by at least Rs 5,000 crore during the period, though mostly from time deposits of one year and less.

Bankers said that given this kind of liability profiles, most of them preferred to invest in Government securities or provide loans where there were good exit options.

Alternatively, retail financing was also attractive in view of the shorter maturity profiles.

Lending to long gestation projects would expose banks to both asset liability mismatches and serious interest rate risks, the sources added.

The maximum period for which public sector banks are in a position to support infrastructure projects is five years. Beyond this period, the loans would have to be taken out by other long-term institutions including insurance companies, which they are however unwilling to do.

Taking out the loans would imply that the loan would have to be purchased from the original lender and the new lender assumes all credit risks associated with the project.

Insurers' reluctance stems partly from the low yield on such takeout financed assets. Further, some of the insurers are not prepared to support infrastructure projects on the basis of sub-sovereign guarantees, since both general and life insurance companies have large amounts due from borrowers.

Besides, the sources said, institutions like the Infrastructure and Development Finance Company (IDFC) - which had initiated the concept - have not been able to conclude any big ticket deals.

In some of the projects, pricing as measured by the discounting rates has been a ticklish issue.

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