With dark clouds gathering over the economy, the Finance Ministry has decided to do a reality check on public sector banks' project loan sanctions of Rs 100 crore and above which have not translated into disbursements for a long time.

The Ministry has sought this information so that it can suitably intervene in case large projects, especially in the infrastructure and manufacturing sectors, are getting bogged down for want of statutory clearances relating to environment, land acquisition/ rehabilitation, and coal/ore linkages.

This move is significant, coming as it does in the wake of banks' non-food credit growth halving to Rs 60,316 crore in the financial year so far (from April 1 to July 15, 2011), against Rs 1,22,464 crore in the corresponding period last year.

Core hit

The lower non-food credit growth has to be seen in the context of signs of emerging economic slowdown. This is underscored by the fact that growth in the eight core infrastructure industries has slowed to 5 per cent in the April-June 2011 period from 6.8 per cent in the same period last year.

The eight core industries that witnessed deceleration in growth in the April-June period were crude oil, petroleum refinery products, natural gas, fertilisers, coal, electricity, cement and finished steel.

The Finance Ministry mandarins, it seems, are worried that economic slowdown could get entrenched and want to proactively intervene so that projects with loan sanctions get off the block, say bankers clued in to the developments.

“We are seeing a clear slowdown in fresh project loan proposals in the wake of rising interest rates. Banks are also not too enthusiastic about proposals from the infrastructure sector due to problems relating to exposure limits and lack of statutory clearances,” said a senior official with a public sector bank.

Robust lending

In the last couple of years, state-owned banks went full steam ahead to finance infrastructure projects. As per the latest data submitted to the Finance Ministry, Andhra Bank, State Bank of India, and Corporation Bank clocked over 60 per cent year-on-year growth in infrastructure loans in FY2011.

Collectively, the 21 state-owned banks and the five associate banks of SBI, lent 90 per cent more in absolute terms to the infrastructure sector in FY2011 at Rs 1,23,446 crore, against Rs 65,160 crore in the previous year.

Notwithstanding the fact that they face issues such as asset-liability mismatches and sectoral exposure limits, these banks went ahead and financed infrastructure projects as development of power, roads, airport, port and urban infrastructure is a priority for the Government.

For infrastructure project developers there is currently no viable alternative to bank financing as the bond market is underdeveloped and there are constraints in channelling insurance/pension funds into the projects.

Related Topics
comment COMMENT NOW