Core projects hit funding hurdle

Banks put tough conditions to finance infrastructure despite RBI measures.

In spite of the recent measures of the Reserve Bank of India (RBI) to ease liquidity, infrastructure companies are finding it tough to access bank credit for completing ongoing projects.

Bankers are seeking higher equity participation, conservative estimates on breakeven and higher interest rates to finance infrastructure projects.

“Bankers are being opportunistic and asking to double the equity participation, and are even raising interest rates, which were earlier capped at a certain percentage, to fund projects. They are also seeking more realistic pre-project estimates, like traffic projections, before extending loans,” said R S Ramasubramaniam, vice-chairman, Feedback Ventures.

Many public private partnership (PPP) infrastructure projects are likely to be delayed by nearly six months, he said. In spite of RBI relaxing norms for external commercial borrowing (ECB) for the infrastructure sector, high cost of funds is a deterrent for companies.

According to sources at Hyderabad-based Maytas Infra, banks are not only delaying funding, but companies are also required to give realistic targets for getting the loans sanctioned.

“From our side, we are trying to optimise our resources. We are trying to put all our resources and finish the projects on time. For instance, earlier we were not insisting the parties on payments, but now we are seeking early payment,” said the Maytas sources.

However, bankers are of the opinion that funding for infrastructure is likely to increase in the coming months.

“Banks are always more interested in financing projects, where more equity is involved. The interest rates are also dependent upon the break-even points, market conditions and demand. So, companies should not expect availing themselves of bank loans at 9-10 per cent lending rate,” said a senior executive at a public sector bank.

“There was a short-term problem in liquidity in the month of September. However, with RBI measures, the situation has improved. There are a few industries where banks are cautious to lend. However, we have not changed our debt-equity ratio for assessing the projects. At the moment, certain sectors like steel, cement and textiles are showing signs of sluggishness. So, banks might be cautious in lending to them,” said an official at another public sector bank.

According to Hemant Kanoria, the chairman and managing director of Kolkata-based non-banking finance company, Srei Infrastructure Finance, over the last three weeks, funding has been a challenge for NBFCs.

“Funding has been a challenge in the last quarter. Some delays in infrastructure funding have been noted, but with raw material cost coming down, construction activity is likely to pick up in the coming months. Also, it is not easy to get funds through ECB at the moment because of the global liquidity problem,” said Kanoria.