APP writes to FinMin, seeks financial support for infrastructure sector

Venkatesh Ganesh Mumbai | Updated on June 10, 2020

The Association of Power Producers (APP) has written to Finance Minister Nirmala Sitharaman to seek financial support for the infrastructure sector.

In a letter seen by BusinessLine and a copy of which has been marked to the PMO, APP has voiced its concern that a larger section of the economy including the infrastructure sector has been struggling to keep up against the impact of extended lockdown induced by the Covid-19 pandemic.

As a solution, APP has sought the setting up of a separate financial institution to support financing of companies in the power and infrastructure sectors. “With IDBI, ICICI, IDFC converting to commercial banks, there is a need for separate and specialized development financing institutions. Additionally, there should be a supporting framework for long term, low cost funding needs of the infra sector,” noted APP.

This, the association added, will aid in achieving the investment of ₹102 lakh crore over next five years as per National Infrastructure Plan. In May, Sitharaman announced a ₹20 lakh crore package for the economy. Additionally, the power ministry recently came out with a ₹90,000 crore relief package to discoms, subject to conditions.

The demand for setting up of a separate financial institution has to do with a lack of transmission by banks to companies. Between December 2018 to May 2020, RBI has reduced repo rate by 250 basis points (bps) but this has not been transmitted to borrowers, stated APP. Also, banks have not been in line with RBI rate cuts in reducing their one year MCLR lending rate. “There is a need to have seamless transmission of repo rate reduction to reduction of rate of interest,” said APP.

ÀPP has also sought working capital support to meet operational requirements as reduction in overall operation of the plants has led to squeeze in cash flow. “Policy support in the form of 10 per cent additional working capital has been formulated, but banks have hardly implemented it and may need additional encouragement to quickly implement it for projects under stress,” it said. Further, for cash strapped businesses, it may be difficult to meet repayment of accumulated interest on working capital facilities over the deferment period by March 2021 as allowed by RBI and may be allowed to be paid over a longer duration, APP noted. Typically, infrastructure projects, especially power projects have very high receivables from government agencies besides needing to pay in advance for raw materials like coal and its transport.

Many state utilities have complained of non payment of subsidy dues from the centre. Banks need to favourably work with borrowers to factor all these requirements while arriving at required working capital, said APP.

APP is of the view that RBI can give flexibility to banks in diluting some of the stringent provisioning norms, to enable banks to work out new loan repayment schedules for affected businesses and mandatory not classify such running account as NPA or bad loans.

Published on June 10, 2020

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