Take-out financing by banks to remain subdued: experts

Banks are less likely to opt for take-out financing route to spread their risks in infrastructure financing in the next 12 months as risk outlook is negative for this segment now, banking experts said today.

Lack of strong project pipeline is another reason behind this phenomenon, they added.

"Currently, risk outlook has turned slightly negative in the infra sector. Unless, this is cleared, take-out financing deals are less likely to happen in the next 6-12 months," Indian Banks Association Senior Advisor Sangeet Shukla told PTI on the sidelines of a summit here.

Take-out financing is a means for banks to offload their long-term advances to a third party, which will enable the former to better leverage its capital. Under this, funding is provided for infra projects of 15-20 years by banks, which after a certain period can be off-loaded to a second party, preventing any possible asset-liability mismatch.

 

The current profit margin structure doesn't encourage banks to enter into take-out financing, Shukla said. "There are some fundamental flaws in the present model. When a bank extends loans for a particular project and takes the risk for the first five to six years, then why should it transfer the account to another bank, when the going becomes smoother?"

Some bankers echoed similar views. "Unless the rate cycle reverses, there is low possibility for banks to enter into take-out financing deals at this point of time," Indian Overseas Bank Chairman and Managing Director M Narendra said.

PwC Associate Director Robin Roy said infra projects should be given all kind of essential linkages to make take- out financing a success in the country.

"The issues causing delays in infrastructure projects should be addressed to see momentum in take-out financing. Also, a holistic approach, along with development of proper ecosystem, is essential for this kind of instrument to succeed," Roy said.