Money & Banking

Rajan asks banks to be cautious inlending to infrastructure sector

Our Bureau Mumbai | Updated on January 23, 2018

Historic moment Prime Minister Narendra Modi with RBI Governor Raghuram Rajan, releasing the concise history of Reserve Bank of India, 1935-1981 in Mumbai on Thursday. Also seen are Maharashtra Chief Minister Devendra Fadnavis, Finance Minister Arun Jaitley and Maharashtra Governor Vidyasagar Rao. PAUL NORONHA

Calls for tapping of new sources for project funding

The country’s push to build infrastructure should not come at the expense of financial stability, said RBI Governor Raghuram Rajan, noting that banks already had too much exposure to the sector.

India needed to find new sources of funding for infrastructure so that debt levels remained ‘moderate’.

“Our tasks are far from over. The nation has enormous financing needs in infrastructure, and far too many of our banks already have too much exposure,” Rajan said at an event celebrating the completion of 80 years by the RBI.

The statement comes amid the Centre’s target of a $1 trillion investment in infrastructure in the five years to 2017, with half of the funding coming from private companies.

He pointed out that “big corporate infrastructure players have also taken too much debt. The required national push to finance infrastructure should not override financial stability, which is key to national security”.

Asset quality worries

Infrastructure lending has seen a lot of asset quality troubles for banks and further funding to the sector is expected to remain a challenge. The gross bad loans ratio of banks could rise to 5.7 per cent by March 2016 from 4.5 per cent last December, according to rating agency ICRA.

Last year the central bank had launched infrastructure bonds, allowing banks to raise debt and use the proceeds to help fund the Central government’s plan to provide affordable housing for all by 2022.

However, the issue of such bonds has been slower than expected.

“Going forward, we need to develop new sources of risk capital so that our infrastructure needs can be financed with a moderate amount of debt, even as we help the system deleverage,” the RBI Governor added.

Published on April 02, 2015

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