Bring InvITs within ambit of bankruptcy law for recoveries: SBI MD

The long-term nature of assets has to be supported by long-term liabilities or there has to be take-out financing. This is starting to happen with the rise in Real Estate Investment Trusts and InvITs

The country’s largest lender, State Bank of India (SBI), has flagged the need to bring the infrastructure investment trusts (InvITs) within the ambit of bankruptcy regulations to give comfort to lenders that these trusts, like any other corporate body, can be used for recoveries.

Ashwini Kumar Tewari, managing director (corporate banking), said, “In the InvITs space there is still concern because as a vehicle it is bankruptcy remote. There is the issue of stress testing of mechanisms for recovery from the InvITs and special purpose vehicles under it. That is yet to be done.” He was addressing the Associated Chamber of Commerce (Assocham) Summit on Non-Banking Financial Companies (NBFCs) and Infrastructure Financing.

The lender has raised the issue with the government and Reserve Bank of India (RBI). “We need to bring these trusts within the purview of bankruptcy. This will go a long way in giving assurance that this is like any other asset. There are a lot of gaps and additional GST on the guarantees, creating a lot of complications. The replacement of management is also something which has to be tested,” he added.

Tewari said addressing these aspects will go a long way in taking away risk from the banking sector and other institutions toward investors as projects are completed.

The long-term nature of assets has to be supported by long-term liabilities or there has to be take-out financing. This is starting to happen with the rise in Real Estate Investment Trusts (REITs) and InvITs. “We are bullish about InvITs because it takes away the long-term risks from the bank after the project is completed and gives a steady source of cash flows to the pension funds and others,” he added.

"There's a long way to go for NBFCs in infrastructure financing. While regulations have rightly evolved and tightened recently due to past incidents, NBFCs have the potential to significantly contribute to this sector," he added.

The SBI MD said the bond market remains an underutilised avenue for long-term infrastructure financing. Partial credit enhancement mechanisms can play a vital role in attracting investors by mitigating risk and encouraging participation in these essential projects.