Banks look to fund infra projects again
Demand is the highest in roads, ports and airports with some government push
MUMBAI: Bankers are warming up to medium and large infrastructure projects once again, signalling a revival in lending to a sector once blighted by bad loans.
Infrastructure loan demand is the highest from sectors such as roads, ports and airports, which receive some kind of government push, two bankers said. Multiple loan proposals are pending, the bankers said on condition of anonymity, adding they are evaluating two large road projects: Ganga Expressway in Uttar Pradesh and Versova-bandra Sea Link in Mumbai, for loans, totalling ₹11,000 crore.
“These are two large projects currently in the market for loans. As per the information memorandum, while Ganga Expressway needs to raise ₹6,000 crore, Versova-bandra Sea Link requires ₹5,000 crore. We are currently doing our due diligence as part of the assessment process,” one of the two bankers said.
In many infrastructure projects, once the project is executed, there is always a refinance market, both domestic and overseas, the banker said.
Refinance allows for large project loans to be taken over by other lenders, spreading the risk among a wider set of institutions.
The Ganga Expressway, which comes under the Uttar Pradesh Expressways Industrial Development Authority, is a 594-km greenfield project between Bijouli village near Meerut to Judapur Dadon in Prayagraj. It will be built by Adani Enterprises and IRB Infrastructure Developers Ltd.
Meanwhile, the 17.17-km Versova-bandra Sea Link being built by Maharashtra State Road Development Corp. (MSRDC) was to be developed by a joint venture between Reliance Infrastructure and Astaldi, an Italian construction firm. Following delays, the project will now be built by Apco Infratech in association with Webuild, a company that acquired Astaldi in 2020.
“Apart from infrastructure, project proposals are coming for manufacturing, renewable energy—mainly solar—and also biofuel production. The government has been nudging spending in these areas,” the banker added.
The government has given considerable focus to infrastructure spending, hoping it would have a multiplier effect on the economy, prompting private capex, creating jobs and aiding post-covid revival. The budget announced in February has earmarked a 35% increase in capital expenditure in FY23 at ₹7.5 trillion. “We have learnt our lessons from past project financing issues. Also, the operating environment and policies are different from what they were in the last decade. Road projects under the new hybrid annuity model are more streamlined, and there is a good deal of traction from other sectors like airports,” said the second banker.
According to Reserve Bank of India (RBI) data, bad loans in the infrastructure sector have been declining for the past few years and stood at 9.2% of total loans to the sector as of 30 September 2021, from 11.9% a year ago. As a percentage of aggregate corporate credit, total infrastructure loans rose to 40.1% in September 2021, from 37.3% in September 2020.
Analysts have also turned bullish about capex revival, although the ongoing war in Ukraine could impact decisions as commodity prices go up. India Ratings and Research estimates capex of about ₹7 trillion each in FY22 and FY23, up from ₹5.5 trillion in FY21, based on an increase in demand. In a 17 February report, the rating agency said bank credit growth to the corporate segment could be around 8% in FY23.
Mint reported last week that SBI’S nod to lend ₹12,770 crore to Adani Enterprises’ arm Navi Mumbai International Airport Pvt. Ltd has generated a lot of interest among rival banks, with a group of five lenders willing to take over a majority of the loan.