Home » There is a large gap in demand over supply of bank credit among bankable and viable projects

There is a large gap in demand over supply of bank credit among bankable and viable projects

There is a large gap in demand over supply of bank credit among bankable and viable projects

As the leader in a consortium lending to the Vizhinjam Seaport, State Bank of Travancore (SBT) will play a major role in Kerala’s industrialisation. The bank can look forward to increasing its infrastructure portfolio if ALM, tenure and other issues are addressed, says SBT’s CMD Pradeep Kumar, in an e-mailed interaction with Shashidhar Nanjundaiah.


Your bank is leading a consortium that will lend to the Vizhinjam International multipurpose port. Please tell us about the quantum and proportion, specific objectives, your bank’s role, etc.
The cost of the proposed Vizhinjam International Multipurpose port is $1,245 million. This is spread in three phases: Phase I ($550 million), Phase II ($266 million) and Phase III ($429 million).


The main objective of the proposed port is to function as a premier transhipment hub given that it enjoys distinct advantages of deep natural draft (which requires minimum maintenance dredging) and proximity to the East-West international shipping route.


SBT has been mandated as the lead bank of the proposed consortium by the Government of Kerala. We look forward to syndicate the debt with all major banks, both in public and private sector.


How do you propose to raise the amount needed for the finance? How have you calculated the return period?
SBI Capital Markets has been appointed by the Government of Kerala (GoK), to prepare the detailed project report (DPR). The working is on, and a final view on the quantum of finance, funding pattern, tenure, etc, can emerge only after the receipt of the final report from them. SBI Capital Markets in collaboration with us proposes to syndicate the debt. Various banks have already evinced interest in participation and enquiries are persistent.


Vizhinjam port has appointed IFC as its project advisor. Would it not have been easier if SBT had been the advisor, given its integral involvement in the project?
IFC possesses international exposure and experience in similar projects. Therefore, it is appointed as the project advisor by the GoK. SBI Cap’s involvement in the project adds to our comfort.


What was the extent of disbursements towards infrastructure projects last year (2009-10) and this year so far? Will your plans for the next fiscal be different? How has been the performance of the infrastructure projects you have financed?
The Bank has been consistently participating in lending to different infrastructure sectors, including ports, in the past. We have so far received exposure in three port projects in India on PPP basis. At present, Bank’s exposure to infrastructure sector is hovering at around 20 per cent of the Bank’s total advance. We propose to maintain the same level in the ensuing FY (2011-12) also. Our loan portfolio in the sector has been performing satisfactorily and is categorised as Standard Asset.


What are the main challenges of lending for infrastructure projects in India? Do you believe that finance for infrastructure projects can be further facilitated?
The main challenges in lending to infrastructure projects in India are:


• Longer tenure
• Longer gestation period
• Limited recourse
• Asset-Liability Mismatch
• Resource crunch
• Availability of trained and experienced personnel


Resolution of above concerns could facilitate increase in our exposure to the infrastructure sectors.


Do you believe Asset-Liability Mismatch (ALM) is the most important deterrent in long term lending? If so, please elaborate on how you are overcoming it. If not, please elaborate on what is the most important deterrent.
Yes, ALM is one of the major impediments to infrastructure funding faced by the commercial banks in India. We are trying to overcome the same with:


• Stipulation of exposure norms by RBI
• Stipulation of internal exposure norms
• Securitisation
• Take-out financing, etc.


Are you satisfied with the quality of the assets in your infrastructure lending? Please elaborate with focus on long term loans in general and project loans in particular. What is the share of infrastructure in your total Non-Performing Assets (NPAs)?
We are satisfied with the quality of assets of SBT to infrastructure lending. This is indicated by the fact that our bank has classified one infrastructure account alone as NPA. The exposure to this account is Rs 8.69 crore only. In terms of value, the total NPA to the infrastructure sector is only 1.35 per cent of the bank’s total gross NPA. Major portion of NPA in our lending to infrastructure belongs to the power sector.


What degree of importance within this allocation would you accord infrastructure lending? And what degree of growth do you foresee over the next three years in this segment? What according to you should be the measures to attract more debt to infrastructure sector?
Lending to infrastructure is one of the growth areas identified by banking industry in the recent past. In view of the sector’s role in acceleration of economic growth and productivity, the Government of India extends support by providing adequate safeguards by enacting legislations, formalising funding methods and providing incentives and subsidies, wherever necessary. This has resulted in making lending to the sector commercially feasible.


Bank credit to the infrastructure sector increased steadily from Rs 7,243 crore in 1999-2000 to Rs 269,972 crore in 2008-09, a compound annual growth of 43.6 per cent during the last 10 years. Still a large gap in demand over the supply of bank credit is available from the bankable and commercially viable projects.


By lending to infrastructure sector, banks undertake huge risks due to delay in land acquisitions, environmental issues, cost and time over run, higher debt-equity ratio; pricing and market risk, technology risk, and political and regulatory risks. However, many of the above risks can be mitigated by prompt and timely intervention by the government and local authorities. Facilities like take-out finance are steps in the right direction.


In which sectors within infrastructure do you see more lending happening in the next year or two?
The major thrust areas in infrastructure would be power, roads and ports.


Are you satisfied with IIFCL’s take-out financing scheme, particularly after new norms have been introduced in the primary lender’s favour? Is SBT planning to participate in take-out financing?
Yes, SBT could participate in take-out financing as and whenever the necessity is felt. However, even though IIFCL has made conscious efforts to make the scheme more attractive to the banks, there are some major impediments to banks.


The first hurdle is capping of interest rate at 10.85 per cent per annum (pa). Secondly, IIFCL will take out only those loans that have been sanctioned after January 2009.


Have the changes in the finalised take-out finance scheme helped (such as the CoD is now one year, risk sharing norms, etc)?
Yes. Amendments were made in the scheme to make it more acceptable. Earlier, the fee was non-refundable when the take-out did not materialise; now, however, 50 per cent of the fee is refundable.


Earlier, the policy stated that the corporate developing the infrastructure project should have an agreement in place with domestic banks and overseas recognised lenders for take-out of the loan within three years of the scheduled CoD, which has now been changed to one year.


Take-out finance has also been opened to ECB route, to enable access to relatively cheaper funding.


How do you see the new Insurance Regulatory Development Authority (IRDA) norms allowing insurers to invest in infrastructure taking shape?
At present, insurance companies are mandated to invest up to 15 per cent of their investible corpus of traditional plans in infrastructure. In addition insurers can only invest in “AA” rated infrastructure projects. They can, however, invest in “A+” rated companies engaged in non-infrastructure related activities.


The Planning Commission has suggested to IRDA that the insurance companies may invest Rs 25,000 crore over the next five years in infrastructure. But the insurance regulator’s main concern is that infrastructure investments are illiquid and involve tenures of more than 10 years, as they have long gestation periods. The returns are also lower compared to other asset classes. As around 80 per cent of the money collected by the 23 insurance companies, at present, comes under unit-linked insurance plans, less money is flowing into the infrastructure sector.


How do you think the, new, proposed infrastructure fund (US-India CEOs’ Forum initiative for debt funding to PPP projects in infrastructure) would unfold and help banks such as yours?
The objective of the Forum is to introduce US firms to the large infrastructure investment opportunity in India and share experiences and best practices for making such investments and identify specific project opportunities for potential investment. It also provided an opportunity for US firms to meet with leading Indian infrastructure development and financing firms who may serve as potential partners.


The Forum has facilitated interaction among government and treasury officials of both the countries, heads of business houses, leading bankers and top infrastructure development firms from both the countries, and experts from the concerned industries, resulting in exchange of ideas and identification of growth areas where participation is possible. Similar interactions should be made at frequent intervals in order to increase the comfort level of stakeholders, both public and private, and also provide a platform for information dissemination, which could in turn result in availability of latest technology and huge amount of funds at the disposal of Indian partners.


20% Goes To Infra Project Lending


• SBT’s disbursement to infrastructure projects (2009-10): Rs 975.11 crore
• SBT’s disbursement to infrastructure during the current fiscal so far: Rs 957.46 crore


SBT Business Rises


With a strong NRI component, State Bank of Travancore (SBT)’s business touched Rs 1 lakh crore level at the end of Q3 of this fiscal. In a rising interest environment that threatens to stymie banks’ profits, SBT’s net profit for Q3 witnessed a 6.7 per cent rise from the figures last year and stood at Rs 176.01 crore. A higher provisioning for bad loans and revision in wages moderated the growth in net profit. The net interest income of the bank has also increased by 25.11 per cent to Rs 464.15 crore in the same period, while the operating profits went up 17.89 per cent to Rs 278.79 crore.


Among the listed SBI associates in terms of market capitalisation, SBT ranks first at Rs 4,797 crore. Each employee at SBT generates Rs 6.96 crore, and although this is lower than an industry average of Rs 8.73 crore, it is higher than that of SBI.


While the bank’s lending grew 23.92 per cent to Rs 44,736 crore, large scale financing to the infrastructure sectors is only on the horizon as SBT leads a consortium of lending banks to finance up to Rs 2,000 crore to the much-awaited Vizhinjam International Multi-Purpose Seaport project in Kerala. An MoU is expected to be signed this month between the Government of Kerala and lending banks, including the chief lender, SBT.

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