Bank finance for infra to remain tepid due to Basel-III: Icra

Even if reforms are initiated in the infrastructure sector, banks' willingness to fund long-term projects could remain tepid as Basel- III norms kicks in, according to ratings agency Icra.

Basel-III norms require banks to migrate to a strict net stable funding ratio (NSFR), which is designed to ensure that long-term assets are funded with stable liabilities. According to Icra estimates, the NSFR for Indian banks is 83 per cent and therefore, banks need to expand the long-term liabilities by Rs 8 lakh crore or shrink the assets to the same extent to make this ratio 100 per cent.

Though the NSFR norm are likely to be implemented in India only by March 2018, banks would be constrained to fund the long-term assets through expensive capital instruments, which are likely to get more expensive as compared to Basel-II instruments due to higher loss absorption features, Icra said. This improves growth prospects of infrastructure finance companies (IFCs).

The pace of growth might still remain around 20 per cent in the short to medium term. However, the long-term growth potential would be linked to the extent and speed of resolution of structural issues in infrastructure, the agency added. "If the structural issues are resolved, balance sheet growth of IFCs could witness higher momentum than seen in the past, provided they are able to mobilise resources at competitive rates to fund growth."

It added the structural problems holding back the infrastructure sector needed to be resolved expeditiously, so that the capacity of the large groups to make fresh investments could improve and the asset quality of lenders, which was under great pressure, could be protected.

Quick corrective steps are required in the areas of power distribution, fuel linkage, land acquisition and regulatory clearance, among others, if the large infrastructure investments envisaged during the 12th five-year Plan (2012-17) are to materialise.

The country has planned $1 trillion investments in infrastructure during the 12th Plan. Out of this, at least 50 per cent will have to come in the form of equity and debt and the rest from budgetary support of state and central governments, says Icra.