Project financing must change: Chanda Kochhar

In FY17, bank credit slipped to 5%, the lowest since fiscal 1953 on tepid corporate demand

With lenders' bets on project loans turning awry, ICICI Bank's Chanda Kochhar has said project financing is set to undergo fundamental changes wherein greater focus will be on planning and diligence. "To bring back investments, the fundamentals of project financing will have to change. Projects will have to be much more completely tied-up before they get funded," Kochhar has said at the launch of a book, edited by former RBI deputy governor Rakesh Mohan, here last evening.

The ICICI Bank's managing director and chief executive said this shall include backward and forward linkages, land availability, natural resources and financial closures. She, however, was quick to add that project finance will continue to be done by banks. The comments come amid heavy setbacks faced by lenders on project loans given out over the last few years across all sectors. The setbacks, coupled with external factors which have slowed down demand, have resulted in lenders shifting focus on retail for growth opportunities. Within corporates, banks have been generally doing a lot of short-term working capital loans and also minimising risks by restricting credit supply to better-rated corporates.

Kochhar said not just banks, even promoters will not be committing money before all the tie-ups are in place. "A lot more time will be spent on planning before monies get committed. That will be a substantive change in project financing," she said. Kochhar also diagnosed the problems faced by lenders during the post-2008 credit boom that resulted in the reverses, saying a lot of assumptions did not come true. These included growth rates halving to about 5 per cent, delays in project clearances, dip in commodity prices.