Bankers voice concern over financing large infra projects

Kolkata: There could be some concern about financing large infrastructure projects as the Reserve Bank of India (RBI) proposes to reduce bank exposure to large corporate entities, said a top SBI official here on Saturday.

“There could be some concern for financing large infrastructure projects particularly greenfield projects. New RBI framework suggests that from April 2019, for any entities with borrowing of Rs 10,000 crore from banking industry, the banks can only finance 50 per cent of additional financing requirements,” said State Bank of India’s Managing Director (Compliance and Risk) P.K. Gupta.

“The rest (of requirements) has to be raised from either equity or market borrowing.”

The bankers told RBI in a discussion on Friday that it should look at this issue, Gupta said on the sidelines of a Banking Summit organised by the Indian Chamber of Commerce and Industry.

“As per the new regulations, in 2017-18, for large exposures of above Rs 25,000 crore, banks will only finance 50 per cent of the additional financing requirements,” Gupta said.

The rest may be raised from the capital market or equity. The new regulations call for bringing down the limit to Rs 15,000 crore in 2018-19.

The RBI’s intention is to bring down banks’ exposure to large borrowers and encourage corporate entities to go to markets to raise more funds, so that there will be better price discovery in the market, Gupta said.

However, companies’ ability to raise funds from the market for large infrastructure projects could be very limited due to not having proper credit ratings and other reasons, he said.

Bankers said that the RBI’s new framework will lead to diversification of funds required for large projects. Globally, firms raise funds from bond markets for large infrastructure projects while in India most of the funds come from the banking sector.

“The framework would help large corporate entities to source funds for projects from diversified instruments and also help banks to ramp down its exposure to large corporates,” Bandhan Bank’s MD and CEO C.S. Ghosh said.