Not just banks, find other ways to finance infra, RBI guv tells India Inc

Lists progress achieved in infra space in past five years, stresses that funding of $4.5 trn by 2030, as estimated by NITI Aayog, cannot be done by banks alone

Reserve Bank of India (RBI) Governor Shaktikanta Das on Monday asked India Inc to look beyond banks to fund infrastructure projects, saying the bad debt overhang had made them risk-averse and quite limited in what kind of exposure they would want to take on their books.

Das was interacting with industry captains at a meeting of the Confederation of Indian Industry (CII) governing council. 

While highlighting the progress achieved in the infrastructure space in the past five years, he said gaps remained there and that the funding of $4.5 trillion by 2030 — as estimated by the NITI Aayog —could not be done by banks alone.

“On financing options for infrastructure, we are just recovering from the consequences of excessive exposure of banks to infrastructure projects. Non-performing assets (NPAs) relating to infrastructure lending by banks have remained at elevated levels. There is clearly a need for diversifying financing options,” he said.

The setting up of the National Investment and Infrastructure Fund (NIIF) in 2015 was a major strategic policy response in this direction, the governor said. However, promoting the corporate bond market, securitisation to address the stressed assets problem, and appropriate pricing and collecting user charges should continue to receive priority in policy, he added.

While the corporate bond market is dominated by AAA-rated firms, the liquidity measures offered by the RBI resulted in the issuances touching nearly Rs 1 trillion in the first quarter, which is a record. 

“There were apprehensions about the corporate bond market freezing up, but it has, as if, received a new life,” the governor said, admitting that most of the issuances were from the AAA segment. 

After consulting the RBI, the government announced a series of measures, such as the first loss guarantee of up to 20 per cent of the bonds, which have helped the lower-rated borrowers as well, he said.

“I do see renewed activities even below the AAA-rated bonds,” Das said, adding the RBI remained “extremely vigilant” on the liquidity needs of the private sector and as and when needed, it would take measures to ease the conditions.

Nevertheless, targeted mega projects, such as the golden quadrilateral, could “reignite the economy”. “This could begin in the form of a north-south and east-west expressway together with high speed rail corridors, both of which would generate large forward and backward linkages for several other sectors of the economy and regions around the rail/road networks,” Das said, adding that both public and private investment would be key to financing the infrastructure investments.

The RBI governor did not commit on queries or suggestions on one-time settlement, creating a sovereign wealth fund, or a national renewable fund of trillions for long-gestation projects. There was also a suggestion of increasing the external commercial borrowing (ECB) limit beyond $750 million, so that industries could take advantage of the low interest rates abroad.

“Such ideas do get internally discussed at the RBI. And we are also engaged with the government in discussing these issues,” the governor said. To a query on the rupee’s fair value, he said the RBI’s stance was to check undue volatility and not to defend any level. The governor also tried to defend banks for reneging on their funding promises to industries, and said any funding decision should be left to banks.

“There’s an extent to which credit risk can be assumed. At the end of the day, banks are driven by their commercial decision, but as I have written in my foreword to the Financial Stability Report, extreme risk-aversion can also create problem for all,” Das said. Das told Indian industries to get into the global supply and value chain, as even 1 per cent increase in participation increases per capita income by over 1 per cent.