Boost for infrastructure

The maiden budget of the Narendra Modi Government has allowed banks to raise long-term funds from the market to finance infrastructure projects. For funds thus raised, >banks are freed from requirements with respect to Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR) and Priority Sector Lending. The move is in tune with the recommendations of the Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households. The panel had suggested the gradual phase-out of SLR, and recommended CRR application only on demand deposits. The budget proposal has a two-fold objective. For one, it seeks to address concerns over the asset-liability mismatch in banks’ lending to >infrastructure projects, which have long gestation periods. By freeing banks of statutory obligations on those funds, on the other hand, the budget aims to bring down the financing cost for them. With projects facing overruns on cost and time fronts due to assorted reasons in the wake of economic slowdown, the banking system as a whole has come under heavy stress. So much so that banks have been forced to restructure a substantial portion of their lending to infrastructure projects. The failure of infrastructure projects on a large scale has seen non-performing assets (NPA) piling up in this sector. A funds-starved government needs private enterprises to give a big push to infra growth. Private enterprises will move into the infra space only if long-term funds are available at affordable rates and near-term worries on repayment do not weigh on them. Viewed against this backdrop, the budget proposal is a twice-blessed move. For, it benefits banks as well as private enterprises.

There is, however, a huge risk in looking at the proposal from a micro prism alone. Is non-availability of long-term funds the sole reason for the present predicament in the >infrastructure space? A host of factors — ranging from land acquisition to green clearance and poor credit appraisal — have combined to derail the infrastructure sector. Is the monetary regulator — the Reserve Bank of India – on the same page with fiscal bosses on the issue of letting banks go free on statutory obligations for money raised to fund infrastructure projects? Even if it is in sync with the fiscal bosses, the RBI may yet be keen to ensure that its ability to exercise control over the monetary aspects of the economy is not compromised. The RBI may do well to ensure that such selective exemptions from statutory obligations do not compromise the viability of the banking system. The budget proposal must be taken forward in a composite way by all the stakeholders so that infrastructure development is facilitated.

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Printable version | Jul 31, 2021 11:26:20 AM | https://www.thehindu.com/opinion/editorial/boost-for-infrastructure/article6214340.ece

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