The Hindu Business Line : Infrastructure, power sectors — PSBs seek relaxation in group exposure norms

PUBLIC sector banks have sought a relaxation in the sector and group exposure norms to expand term loan portfolios for the infrastructure and power sectors.

Sources said that unless the limits are liberalised further, it would be difficult for them to raise their exposure limits to some of the large groups, including public sector enterprises such as NTPC and NHPC.

The Government has set an ambitious target of adding one lakh MW of capacity by the terminal year of the 11th Plan along with a full-fledged national transmission grid and stepping up transmission capacity to 34,000 MW.

Entities such as NTPC, NHPC and Power Grid Corporation of India Ltd (PGCIL) have large projects planned for the current and next Plan periods.

Since some of these projects are of long gestation, banks need to sanction and begin disbursement of term loans or provide deferred payment guarantees to foreign lenders between the current year and next year.

The funding requirement at current costs is estimated to be Rs 2,50,000 crore, assuming a 70:30 debt equity ratio.

The sources said that while the banking sector, which is awash with liquidity, is prepared to assume credit risk of project promoters with good track record, they are constrained by the Reserve Bank of India's (RBI) exposure guidelines.

These guidelines mandate an exposure ceiling of 15 per cent of the capital to a single group and 40 per cent ceiling to a single sector.

Though these are relaxable by another five per cent for infrastructure sector, bankers said that some of them have already reached or are close to the prescribed ceilings - especially in the case of smaller banks, which have a much smaller capital base.

As a result of these exposure norms, only specialised financing agencies like the Power Finance Corporation are in a position to lend. This is because they are not bound by the RBI's exposure guidelines.

However, these agencies have a higher cost of working funds than banks. Accordingly, their lending rates are also higher.

In fact, banks had picked up some of the bond issues of some of the public sector undertakings, including NTPC, with coupons as low as 5.95 per cent early this year, as a result of low costs of working funds. The current cost of working of banks is less than five per cent.

The bankers said that unlike some of the international banks, where exposure norms also included borrowed funds, the RBI's norms are restrictive.

However, none of the banks want any change in the capital norms. Instead, they need a waiver of these norms for lending to large organisations, especially if projects are being taken on a full/limited recourse basis.

In such methods of funding, exposure has little relevance since credit carries a pari passu charge on project revenue streams backed by guarantees, the bankers said.

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