Banks are increasingly becoming wary of financing infrastructure projects as they scramble to clean up their balance sheets before lending afresh in 2018-19.

With the recent guidelines by the Reserve Bank of India for early recognition of stressed assets, most private banks, while announcing their annual results over the last few weeks, have indicated that they would focus on retail and corporate lending this fiscal and remain “conservative” to lending to infrastructure projects.

On Monday, ICICI Bank indicated it would limit its exposure to corporate and project loans after its net profit fell nearly 50 per cent in the fourth quarter last fiscal. Private sector lender Axis Bank, which has posted a loss of ₹2,188.74 crore in the quarter ended March 31, 2018, too, has announced that it “is unlikely to pursue long-gestation project loans” in the current financial year.

“Banks simply don’t have the appetite for infrastructure financing, given that they are still trying to clear up the mess from loans to the sector from before,” said an executive with a private bank, adding that most lenders are more focussed on offloading stressed projects through the National Company Law Tribunal (NCLT).

“This is the new economy. We do not expect fresh lending in infrastructure in the coming quarters. Brownfield projects, which are already on the block through the NCLT in sectors including power and steel, are more attractive,” noted another banker.

Recapitalisation plan

This could pose a big challenge for the government, which has been hoping for a revival in private investment to spur economic growth, especially after its massive recapitalisation plan of public sector banks (PSBs).

Analysts said PSBs, which are already weighed down by high non-performing assets (NPAs), will also remain cautious this fiscal as most of the capital infused in them will go towards meeting losses.

“Banks have been facing high NPAs. With the February 12 guidelines by the RBI, there is expected to be a rise in slippages, which will impact their profitability. Also, most PSU banks are facing a scarcity of capital. We think, in 2018-19, banks will focus on cleaning up their balance sheets and focus more on retail lending with limited exposure to infrastructure loans,” said Aditya Acharekar, Associate Director, CARE Ratings.

A recent report by Moody’s Investor Services pegged the overall pool of stressed assets of PSBs to the total outstanding at the end of December 2017 at 16.5 per cent and that of private banks at 6.6 per cent, and said they are set to rise further with the new RBI norms.

“Most of the existing restructured assets are legacy loans originated in 2009-12, largely to infrastructure-related sectors, such as construction and power, and we expect growth in new stressed assets to be limited,” it said, adding that the power sector accounts for nearly 58 per cent of the stressed assets, while others, including steel, construction and mining, account for the balance.

RBI diktat

The Reserve Bank of India had on February 12 issued a fresh framework for resolution of bad loans, under which banks would have to disclose defaults even if the interest repayment is overdue by just one day. Banks would also be expected to have a resolution plan in place within 180 days. It had also scrapped loan restructuring schemes.

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