The task force set up by the government to boost investments in infrastructure projects is in the process of identifying sectors requiring funding from the centre, shared finance minister Nirmala Sitharaman, while stressing the need to speed up spending. “Government spending has to be speeded up to boost consumption. The best spending (by the government) will be on infrastructure. We had already announced Rs 100 lakh crore as the amount in this year’s budget, which I think has to be speeded up for infrastructure-related projects”, she said. “I have appointed a task force to speedily identify the projects so that money can be front-loaded” she added.

The Minister said the task force had commenced work and was in the process of identifying those projects which would receive the funding from the Rs 100 lakh crore corpus. The task force, comprising secretaries from various ministries, other senior officials and the NITI Aayog CEO, would identify technically feasible and financially viable infrastructure projects that can be initiated in 2019-20, she said. Sitharaman said that the government, as part of its move to make India a USD 5 trillion economy, has chalked out various measures, including infrastructure spending and the merger of public sector banks, among others. She also said that the current focus would be on how to increase the GDP in the coming quarters.

RBI’s new rules on NPAs may hit infrastructure financing

Stringent criteria in the RBI’s revised framework for resolution of stressed assets, which was unveiled on February 12, 2018, are likely to deter investors from lending money to risky, long-term projects in the infrastructure sector, say experts

April 24, 2018: With the Reserve Bank of India (RBI) giving no relaxation to its February 12 Framework on the resolution of stressed assets, banks are likely to become more cautious and risk-averse to long-term funding, especially to the infrastructure sector, say lenders. On February 12, 2018, the central bank had come out with a Revised Framework for resolution of stressed assets. The new set of rules aim at quick reporting of defaults, coming out with resolution plans for defaulting companies and time-bound referrals of defaulting firms to the National Company Law Tribunal (NCLT).

Owing to certain stringent criterion in the new framework, which includes one-day reporting of defaults, lenders have asked for some leniency but the apex bank has not granted any relaxation to its February 12, 2018 circular. “The RBI is very clear that they are not going to give any relaxation (on the February 12 framework). Now, I think, banks will become very cautious and risk-averse, particularly on the long-term funding in sectors such as power, road and ports,” said a senior banker.

See also: RBI notifies revised framework to deal with bad loans

Bankers said most of the restructuring happens in long-term projects in the infrastructure sector. For nation building, funding is required for these sectors but the risks are very high in these projects, as there are things that are beyond the capabilities of the promoters and hence, banks will be very conservative, said another banker from a large state-run bank. “The issue with long-term funding, is that in these kinds of loans, there are lots of variables like land acquisition, environment clearances or technical reasons that cannot be factored in, at the time of loan sanctioning. If a loan is for one year, then, there are less risk factors and we can visualise the kind of issues for that particular project over that period. However, if I am talking of 12 years, it is very difficult for us to visualise the issues,” the banker explained.

Under the framework, bankers will have to implement a resolution plan to revive a defaulting company, within 180 days. If the plan is not implemented within the stipulated time, the account will have to be referred to the NCLT for resolution, as per the Insolvency and Bankruptcy Code (IBC). The new plan requires approval from all the banks, in a consortium, for any resolution plan. Banks requested the RBI to make the required majority to 75 per cent for any such plan but they are yet to hear from the regulator. In the revised framework, the RBI also discontinued earlier restructuring schemes like the corporate debt restructuring (CDR), strategic debt restructuring (SDR) and scheme for sustainable structuring of stressed assets (S4A). Lenders had urged the central bank to allow these restructuring schemes for some more time but to no avail.

In a recent speech, RBI deputy governor NS Vishwanathan had defended the February 12, 2018 framework, indicating there would be no relaxation to the new set of rules. “The RBI, as a regulator, is trying to bring in discipline and will always look at it from a systemic perspective but banks will have to evaluate it (any rule) from the overall implication on their balance sheets,” said another senior banker. “Nobody has said that this (revised framework) is not doable. What banks are saying, is that they need some time, to switch over. Both, the industry and banks, have to prepare themselves for the new set of norms. This could be done in a phased manner,” the banker added.

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