The largest bank in the country, SBI, has highlighted the need to introduce new financial products to facilitate the refinancing of long-gestation projects every five years. This necessity arises as lenders face increasing pressure on their housing loan plans.
SBI intends to fund infrastructure projects on a larger scale. The public sector undertaking is exploring various options, which include focusing more on takeout finance and attracting pension funds and long-term investors who can invest in the infrastructure sector with lower risk.
Currently, a majority of infrastructure financing is provided by banks, which lack access to long-term funds. As a result, developers are compelled to repay loans within a short period, despite the assets being created for long-term usage.
Projects designed to last for 40 years are often financed using 10-year loans, the standard term for banks. Consequently, the repayment period is typically around seven years, leading to financial strain.
This scenario results in a front-loading of repayments by infrastructure projects, with successful repayment hinging on economic growth and the timely completion of projects. However, economic growth remains at around half the expected rate, and projects are frequently delayed due to various issues.
Major banks often attribute the decline in their asset quality to the infrastructure and allied sectors. Gross Non-Performing Assets (NPAs) stood at 3.9% as of March 2013, compared to 3.5% in the previous fiscal year, while net NPAs rose to 1.9% in FY13 from 1.6% a year ago.