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With lenders experiencing stress on their infra loan books, the head of country’s largest bank SBI has called for a need to introduce new products to finance the long-gestation projects, including refinancing the loans every five years.
“As we move forward, there is a greater need to device new products to fund infrastructure projects. This will be by means of new structures, such as 5x25 route (under which an asset gets refinanced every five years),” the newly-appointed chairperson Arundhati Bhattacharya told a capital markets summit organised by the ISB here over the weekend.
Other options, which should be looked into, include more focus on takeout finance, getting pension funds and insurers who can invest for the long-term but have lower risk appetite, and deepening the corporate bond market, she said.
A majority of the infra financing is presently being done by banks, who do not have access to long-term money, and hence, infrastructure builders are forced to repay within a short period, even though the underlying asset is created for the long-term, she said.
“Assets created for 35-40 years is being funded by 10-year money, which is all that commercial banks have. Therefore, it is required to be paid back within an average span of seven years,” she said.
Bhattacharya said as a result of this, there is a "front-loading" of repayments by infrastructure projects and the repayment for a project is feasible only on the assumption of economic growth and timely completion of such projects.
Economic growth is at around half the potential while the projects are not coming on stream due to a host of issues with clearances and the incompetence of the promoters, she said.
It can be noted that a majority of the banks blame infra and the allied sectors for their asset quality woes.
Gross NPAs stood at a record 3.6 per cent as of March 2013 as against 3.1 per cent previous fiscal, according to RBI data, while net NPAs rose to 1.7 per cent in FY13 from 1.3 per cent a year ago.
The Reserve Bank has asked banks to strengthen their due diligence and improve the loan recovery process in its annual banking report last week.
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