Specialised non-bank lenders such as such as NBFC–IFCs (non-banking finance company – infrastructure finance companies) and NBFC–IDFs (infrastructure debt funds) are going one up against banks in the infrastructure lending space.

Infrastructure loan book growth of these specialised non-bank lenders has been growing relatively faster vis-a-vis banks’ in the last couple of years.

This comes amid NaBFID (National Bank for Financing Infrastructure and Development) commencing full-fledged lending operations in 2023 and PFC (Power Finance Corporation) and its subsidiary REC (Rural Electrification Corporation) diversifying into funding non-power infrastructure projects.

NBFC-IFCs (such as NaBFID, PFC, REC, HUDCO, IIFCL and IRFC) and NBFC-IDFs (such as India Infradebt, Kotak Infrastructure Debt Fund and NIIF Infrastructure Finance) have picked up the slack. This is borne out by RBI data.

Gap that needs bridging

Banks’ outstanding infrastructure portfolio nudged up just 0.63 per cent year-on-year (yoy) to ₹12,02,605 crore as on March-end 2023. This portfolio was up 6.5 per cent y-o-y to ₹12,80,258 crore as on March-end 2024, going by RBI data.

In sharp contrast, NBFC-IFCs logged a strong 10.9 per cent y-o-y growth in their infrastructure portfolio to ₹13,68,506 crore as on March-end 2023. This portfolio clocked a 9.6 per cent y-o-y growth (higher than banks’ 6.5 per cent growth) to ₹14,99,348 crore on March-end 2024.

Most of the NBFC-IFCs are government-owned, mainly providing credit to the infrastructure sector. This includes segments like power, telecommunications, roads, airports, ports, railways, among others.

NBFC-IDFs grow

NBFC-IDFs recorded a 20-per-cent plus growth in their infrastructure loan portfolio in the last two years. Their portfolio grew 23.9 per cent y-o-y to ₹36,506 crore as on March-end 2023 and 22.2 per cent y-o-y to ₹44,612 crore as on March-end 2024.

NBFC-IDFs provide refinancing once infrastructure projects have completed at least one year of commercial operations and finance toll operate transfer (TOT) projects as the direct lender.

“In its two years of operations, NaBFID has built up a loan book and investment book of about ₹47,600 crore and about ₹750 crore, respectively, as on September-end 2024. PFC and REC have moved into funding non-power infrastructure projects.

“So, there is stiff competition for banks’ from non-bank lenders for financing infrastructure projects,” said a senior public sector bank official.

Moreover, once an infrastructure project commences operations and cash flows stabilise, its credit rating improves, So, the project promoter can create an Infrastructure Investment Trust (InvIT), get investors to invest in units (with the project’s cash flows as underlying security), and pay off high-cost bank loan. This can shrink a bank’s loan book.

In such a scenario, banks are looking at tie-ups with specialised non-bank lenders to jointly lend to infrastructure projects and grow their book. They also pursuing opportunities for extending working capital.

Published on January 22, 2025