With loan repayment to banks being front-loaded, the concessionaires faced problems in making payments as revenue from the projects typically grew as the concession matured, he said.
Now that commercial banks have stopped lending to troubled infrastructure projects and rising non-performing asset (NPA) levels limiting their ability to advance funds to future projects, specialised financial institutions equipped with infrastructure project appraisal skills need to get into such projects, said Hemant Kanoria, Chairman and Managing Director, Srei Infrastructure Finance.
With loan repayment to banks being front-loaded, the concessionaires faced problems in making payments as revenue from the projects typically grew as the concession matured, he said. Thus, servicing the loan in the initial years became a major challenge, he added.
“India needs specialised financial institutions equipped with infrastructure project appraisal skills, and these institutions should be incentivised to indulge in take-out financing and refinancing so that they can takeover banks’ exposure in infrastructure projects after the initial phase of lending (during the construction period), and thus relieve banks to lend to other projects,” Mr. Kanoria said.
“Part of the long-term domestic resources like pension and insurance funds needed to be channelised into infrastructure financing,” he said adding, “So far, insurance and PF agencies are allowed to invest in mutual funds. If government allows them to invest in NBFCs (non-banking finance companies) like infrastructure finance companies (IFCs) and asset finance companies (AFCs), that will go a long way in addressing the asset-liability mismatch problem for NBFCs.Inflation-linked bonds
Inflation-linked bonds needed to be tried out, he said. Ideally, any financial institution, which had been accorded Public Financial Institution (PFI) status, should be allowed to mobilise resource by using these instruments, he added.
“Economic slowdown, current account deficit and fiscal deficit have severely constrained government’s ability to undertake fresh investment in infrastructure projects, and efforts have been made to get more private investment in infrastructure.
But sustaining private sector interest is becoming challenging, especially after 2013, which has been particularly a bad year for the infrastructure sector,” Mr.Kanoria said.