Although her bank itself has been lending to infrastructure for about a decade, she says that infrastructure finance is too infantile to be assessed for quality shedding light on the long-drawn and complex learning process the sectors and their financiers are experiencing. , Chairperson & Managing Director, Bank of India, talking to Sumantra Das, says that while PPP is the best thing ever to happen to infrastructure, regulation and confidence-building measures are critical at this juncture.
Do you think India's growth story is over? No, India-'s growth story is still there. The basic fundamentals of growth, demographics and consumption will increase, apart from infrastructure spend and the entrepreneurial spirit of Indians. Of course, we will require the government to play in. According to me, public-private partnership (PPP) is a very good model for infrastructure growth, but the government has to take some more proactive measures and going forward, I still believe that India-'s growth story has to continue.
Where do the issues in infrastructure projects start, with the policies or with the implementation? I would not say that it is the dearth of policies, but the execution where we are lacking. There has to be more governance in execution, with inter-ministerial coordination. Besides, speedier single-window clearances need to be implemented which may help resolve the woes of the businessmen.
As a banker, what is your learning from these tough times? On a macro level, the global environment is likely to remain benign with probability of less volatility in the developed market as Euros have started improving. India-'s long term fundamentals are stronger than any other developing country. So, there is positive outlook for Indian economy to bounce back, given the structural changes which have to happen and business environment improve.
Are we slower on taking positive initiatives compared to other developing nations? We have our own socio-economic and political compulsions. We are in a democratic society and we have to pay a certain price for having a democratic set-up. We are not like China which has a state-run system.
Will the recent RBI policy measures bring any dramatic changes in infrastructure finance? As of now, there has been no announcement specific to the infrastructure sector from the RBI (except a change in the definition of infrastructure done by the RBI a few months ago). Also, the restructuring guidelines have been slightly modified to make it more flexible. This is rightly so, because the infrastructure financing is a different cup of tea since it is capital intensive. We can-'t treat the infrastructure finance like any other form of term-lending project finance. In fact, the RBI should look at the non-performing asset (NPA) guidelines and it should be slated at a different scale than what we have currently. The infrastructure financing is evolving, as it is new to the country and we are still at an incubation stage. Though the concept of infrastructure finance took place 7-8 years ago, the experience is still untested. Some of the early projects are getting completed now and they are generating revenue. In the last three years, we have faced structural issues due to which a couple of projects got stalled. So, it is too early to comment on the quality of infrastructure finance.
With new governor at the helm, can we see more policy liberalisation in the near future? Yes, but with the inflation figure being what it is, I do not know how much leeway the RBI would have to reduce interest rates or to reverse liquidity. Tightening measures were expected to be eased in a couple of months, but looking at the figures and inflation, we need to wait and watch.
As far as liberalisation, businessmen see the ease of doing business as the missing link. Yes, interest rate is only one of the criteria and liquidity system is another, which of course will have to contain in the short term. I won-'t say we are not seeing much improvement but much has to happen, so we still have a long way to go.
How did restructuring of state discoms impact your balance sheet? Restructuring is a delayed but welcome move. The sheer fact that reform measures are being taken by the state governments is heartening. As the revised structure that the government has asked states to act as guarantor, banks are not taking any re-risk.
In the present environment, will banks continue to be a major lender for infrastructure or a bond market, for example, may develop? I believe the RBI Governor wants to bring in many initiatives to make the bond and equity markets stronger. In particular, the bond market and various derivative instruments that are required will develop over a period.
What would be BoI's lending priority? We would like to be everywhere. In today's market, you can-'t just afford to be in one segment. MSME retail gives good return and with low default. But it doesn't give us volumes, so when I have huge funds where do I invest? I have to invest where the opportunity is present. So with that point of view, we will definitely go for infrastructure lending.
Which infrastructure sectors do you see as having better growth potential than the others? We will take up projects based on the track record of promoters. Though road projects are quite good, there are a few road projects that have been stuck up, so it is a combination of positive and negative. We have lent 70-72 per cent to the power sector, and the remaining in the road sector. Commercial real estate and hospitality projects are popular in some regions. Ports have also done fairly well. In road projects, we have a mixed experience. We have completed 80-85 per cent of the road projects, and some of them have started getting the toll revenues. However, we are going slow on thermal power, while other segments like hydro and solar are evolving, so we are yet to see those opportunities. The overall experience has been satisfactory. I am quite positive for the infrastructure sector and we will definitely go for it.
What strategic initiatives is BoI taking on short-term issues like solvency, liquidity, and innovation? We have been trying to re-align portfolios between the overseas and domestic because the margin of the domestic side is always more than the overseas. Historically, the credit-deposit (CD) ratio on the domestic side has been 66 or 67 but including overseas our CD ratio is 76. On the overseas side, our CD ratio is more than 100 per cent, where our margin is always less at 1.20 but the domestic side it is always 3.07.
Our first effort is to improve the productivity and profitability on the domestic side, helping us to improve our bottom line more. Towards this end, we have done some organisational restructuring with more focus on the retail and SME, and to tide over the current situation we have taken Current Account Savings Account (CASA) as the systematic campaign so that we can grow at the rate of at least 23 per cent. Otherwise, our growth has been 16-18 per cent, and we want to grow between 23 and 25 per cent. We also want to improve our CASA from 33 per cent to 35 per cent in the next two years. While our primary focus is to increase the growth rate by at least one per cent by March 2014.
There are three major focus areas I would like the branches to do, retail deposit, retail lending and e-products. The fourth thing would be recovery. We have created a separate mid-corporate branch to send large profit values to big tickets; the process is working well now.
What is your view of the new land acquisition bill? Will it change some of your strategies? Currently, there is not much clarity on the Bill, though there are some debates that it may delay at times; businessmen have better clarity on how they can move in the matter. I-'m sure there will be better governance as the country continues to learn; wrong practices will be curbed and I-'m quite optimistic that everything should fall in its place. Considerable dramatic changes will happen and clearances will be faster.
How has your experience been with PPP? PPP is the only successful model we have seen in the country. The government cannot unduly put in a lot of money because it has its own funding constraints. It is only the private investors who actually risk their money, and they have been quite successful doing so. So it is necessary that [the government] gives them the confidence it is a little shaken at present. There is money in the private sector; it is just that they have to bring it into the system and start investing, which can happen only after the structural changes are made.
Do banks need a separate team with internal expertise to understand techno-feasibility and viability of infrastructure projects especially since they are mostly big-ticket? We have been doing infrastructure funding since last 8-10 years. Currently, all the banks have an in-house team for study, as we also have our own experts in the panel. If we get an infrastructure project, we have a panel of experts and we do refer to them first. We also have expert firm which does the study. So, from the skill assessment or expertise point of view, I don-'t think bankers are lagging behind.
Will the introduction of regulators in infrastructure sector fasten the growth process? The regulatory framework in the country for various infrastructure sectors has developed autonomously within each infrastructure sector with little cross-fertilisation of ideas across sectors. A common regulatory philosophy guiding the evolution of regulatory institutions in these infrastructure sectors has been lacking throughout these years. The time has now come to recognise that institutionalising a robust regulatory philosophy based on a framework with adequate capacity is a necessary, though not sufficient, condition for accelerated and sustainable growth of infrastructure.
How do you view India-'s infrastructure growth? What are the issues you find as bottlenecks for growth? Investments in infrastructure have increased from 5.71 per cent of GDP in FY 2006-07 to 8.37 per cent of GDP in FY 2011-12. Telecommunication, roadways and electricity have performed better.
Some of the factors that could be a key enabler for future growth are:
In many countries, long term bonds form a major share of infrastructure finance. However, the Indian corporate bond market is less than 5 per cent of GDP. While several committees have suggested reforms for the domestic bond market and steps have been initiated, this market is yet to take off.
Land acquisition, environment clearance and fuel supply issues remain the top three critical pain areas impeding the infrastructure growth in India. Individual sectors have unique issues needing focused attention. How-¡ever, these three issues need policy and regulatory changes for their early resolution should be implemented urgently.