The Cabinet last week approved a one-time capital infusion by the National Highways Association of India to get stalled road projects moving. However, according to credit rating agency India Ratings and Research (Ind-Ra), lenders and developers may not be keen on taking advantage of this infusion, which could work out to Rs 45,000 crore.
“Ind-Ra believes that developers and lenders to the projects however may be hesitant for such funding by NHAI, due to the clause of first charge by NHAI on the toll/annuity receivables of these projects… over the senior lenders’ debt service,” the rating agency said on Tuesday.
However, the company added that the government’s recent measures to get stalled projects back on track “may give a fillip to the road sector, as this may push up average daily road construction, which has dropped to 4.1 km in FY15 from an all-time high of 7.4km in FY13.”
However, earlier this year, Road Transport and Highways Minister Nitin Gadkari had told The Hindu that road construction was progressing much faster than Ind-Ra says. Mr Gadkari had said that the work was now progressing at the rate of 14 km a day, adding that the target was 30 km daily by March-end.
The Cabinet last week approved the NHAI’s proposal for the one-time funding, which had been made in June. “This infusion of fund would be a one-time dispensation for all such projects that have been languishing as on 1st November, 2014. All such cases and the amount of bridge fund required in each case shall be approved by the Authority, on a case to case basis,” the Cabinet brief said.
Bank credit to the infrastructure sector grew at a compound annual growth rate of 39.5 per cent in the last 14 years, according to Ind-Ra. The company added that outstanding bank credit to the infrastructure sector stood at Rs 10.07 trillion in March 2015 compared with Rs. 95 billion in March 2001.
Further, infrastructure comprises a significant portion of bank advances. The Financial Stability Report of June 2015 by the Reserve Bank of India said that infrastructure made up 15 per cent of total advances of the scheduled commercial banks, and around 30 per cent of total stressed advances.
However, the rating agency made clear that simply pumping in funds will not be enough to get all projects moving. “Funding shortfall may not be the only reason for languishing projects, but also delays in getting the appropriate approvals and clearances from various government agencies. While this has resulted in project deferrals and cost overruns, the same has further increased the stressed loans in the banking system. Hence one-time funding may not help all stranded projects, but only those that needed financing,” Ind-Ra said.
