Srei bets on 'last-mile' financing for growth

Firm says will not 'jump the gun' in its preparation to create a bank

Srei Infrastructure Finance is betting on “last-mile” financing to drive its business growth in the current uncertain macroeconomic environment. The lender is exploring opportunities to finance projects that are yet to generate cash flows and have witnessed cost overruns due to implementation delays.

J Moses Harding, group CEO— liability and treasury management at Srei, told Business Standard: “There is an opportunity for last-mile financing. Say, a project is of Rs 100 crore, and there is a cost overrun of Rs 10 crore. The promoter is trying to get that additional money from the market. He will not get it from existing lenders since the account is not performing. It gives us an opportunity to step in.

“In most cases, the promoter is not only willing to give a pari-passu (equal footing) on existing assets but also offers to bring in other personal securities. That is the only opportunity available in the market now.”

The infrastructure finance company has turned a cautious lender in the current environment to keep its portfolio quality intact. The company's consolidated disbursement during the nine months ended December, 2013, was at Rs 9,463 crore compared with Rs 10,807 crore in the corresponding period of the previous year.

Harding admitted that the lender had not been growing its topline in recent quarters and was focusing on consolidating its balance sheet. “There is absolutely no demand for new projects. With investments stuck, the appetite for fresh projects is not there. Apart from cost overruns, there is also an impact of reduced cash flows in projects that are up and running,” he added.

He ruled out Srei buying stressed loans that might be put on the block. “For that you need to have balance sheet space. We have curtailed our balance sheet capacity. Also, the opportunity in last-mile financing is there. When we are able to get better credit from the market, there is no need to buy stressed assets unless they come at a huge discount,” Harding said.

Banking foray
Srei is one of the 25 players that have applied for a new banking licences. Last week, an advisory committee headed by former Reserve Bank of India (RBI) governor Bimal Jalan had submitted its report to the central bank after scrutinising the applications for new bank licences.

Harding said while the Kolkata-based company was ready to set up a bank, it will prepare the blueprint only after getting the licence.

“We are not jumping the gun. Almost 60 per cent of a full bank is already there. We have the base, existing business, back-end software, teams, etc. We only have to put together the front end, core banking solution and relationship teams outside project and equipment finance. Given this positioning, there is no need to plan in advance for the balance 40 per cent because if you don't get the licence you will end up wasting your time, energy and money. It can be done when we get the licence,” Harding said.

Srei has a three-tier strategy for its banking foray. It will leverage its relationships in project and equipment finance to offer other banking products and services to its existing clients. “We have 27,000 footprints through Sahaj and all those will become business correspondents overnight. That will give us entry to deeper geographies, in Tier-III to -VI cities, and grow our retail, priority sector and SME businesses. Then we will get into top-end corporate banking relationship. We want to create a holistic bank,” Harding said.