ADB eyes India's education, agri-biz for private sector operations

Asian Development Bank is bullish about its private sector operations in India, going by the robust pipeline of projects for the forthcoming months.

Over $1 billion of potential financial assistance has been lined up for the next two years, said Ms Lakshmi Venkatachalam, Vice-President, Private Sector and Co-financing Operations, ADB.

A significant component of the pipeline is in the renewable energy sector (about $700 million) followed by transport and housing finance, Ms Venkatachalam told Business Line here.

As part of the efforts to ramp up its private sector operations in India, ADB is now looking to extend financing support to new areas such as education, agri-business and microfinance, she said. As part of financial sector development, ADB's private sector operations will also be looking at housing finance.

“We will constantly be on the lookout for emerging sectors where the regulatory and enabling environment is still in a developing stage, and where expected returns are not considered to be commensurate with the associated risks. Our new initiatives, by way of knowledge-based or financing assistance, whatever the case, will largely be geared towards these specific areas,” she said.

In the last two years, ADB's private sector operations had not seen much activity in India. “This is partly due to the economic crisis and the resultant need to prioritise our activities into regions and sectors that needed our activities into regions and sectors that needed our help the most,” she added.

Ms Venkatachalam, who joined ADB in June last year in the newly created vice presidency for private sector, is here on her first official visit to India. Private sector operations are relatively new for ADB. The Manila-headquartered regional development bank wants to scale up private sector operations in all operational areas reaching 50 per cent of annual operations by 2020. This aspiration is reflected in ADB's “Strategy 2020” document.

In absolute terms, ADB's current exposure to the Indian private sector (including non-sovereign assistance to the public sector) is about $1.2 billion. As of end September 2010, ADB's private sector operations had its largest exposure in India, accounting for 23 per cent of the total portfolio. (China, in comparison, had 19 per cent.) This is exclusive of regional projects, which account for another 15 per cent, apart of which could also be invested in India and China.

ADB does not specifically have country-specific targets for its private sector operations except for a stated focus on fragile and frontier economies.

On how ADB's private sector operations price its risk and manage them, Ms Venkatachalam said that ADB tends to engage in projects that are structured, contractually or through suitable hedging mechanism, in a manner that they are largely insulated from volatilities in their cash flows — both on the cost side and also on the revenue side.

“Insofar as project risk assessment and pricing of such risks is concerned, we are no different from commercial banks. Credit spreads applicable to our loans factor in the risks inherent in a transaction – both commercial and political. All our private sector assistances are therefore priced to market,” she added.

However, ADB does have the ability to introduce certain structural enhancements in its product offerings which a typical commercial bank may not be in a position to offer.

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