With huge infrastructure projects underway in Maharashtra, the state government is looking at restructuring its funding model so that bankers who are willing to fund projects will be covered by the government. This will form part of the agreement that they sign with the developers. This was disclosed by Ashish Kumar Singh, Principal Secretary, PWD, Govt of Maharashtra, at a panel discussion during day two of FICCI-IBA Annual Banking Conference- FIBAC 2017, being held in the city. The session, titled ‘Infrastructure Finance 2.0 and Future of Development Funding’, was moderated by Ashish Garg, Partner and Director, Boston Consulting Group. Other panellists included MS Mahabaleshwara, MD and CEO, Karnataka Bank; Venkat Nageswar Chalasani, DMD – Global Markets, State Bank of India; Ajay Mahajan, Head, Wholesale Banking, IDFC Bank; and Madhu Terdal, Group CFO, GMR Group.
“Infrastructure is becoming bigger, varied and complex,” declared Garg in his opening remarks. Setting the tone for the discussion, he asked the panellists whether the finance space has enough bandwidth for private and risk capital. In the wake of a number of policy initiatives by the government, he asked whether the financial sector is ready with products and structures that can address and take advantage of the changes in policy. He also wondered how to “make sure what we are investing in today is future-ready.”
Singh felt that while the state is ready to deliver, it will need developers, bankers and lawyers to get together to make it happen successfully. He observed that a lot of infrastructure projects are funded by NBFCs with a short-term view.
Mahabaleshwara described Infrastructure 2.0 as a national asset. He called upon the banking community to learn from the bottlenecks of version 1.0. He pointed out that there are now new avenues for funding infrastructure projects over the next 30-40 years. There are large projects on the anvil, and the money for the projects is already arranged by the government. Citing the recently-commissioned bullet train project, he observed, “The money is already there. But what about men and material? The material has to be manufactured and produced in India. This is where the economy will grow.” He suggested that just as ECGC regulates export credit, the government should consider instituting an Infrastructure Credit Guarantee Corporation (ICGC). This will encourage banks to “be more adventurous.” This is especially since there are good opportunities, but bankers are not in a position to take responsibility.
Chalasani reminded the house that State Bank of India has a presence in every component of infrastructure projects. “Rupee loans, foreign currency loans, rupee bonds, dollar bonds,” he said, are all within its ambit. He informed that they have a subsidiary that prepares projects, guides and syndicates loans. They are also working on credit enhancement of companies. “We are playing an active role in the entire cycle.”
“It is important to understand what problems the sector has faced,” was the view of Mahajan. He called upon the industry to learn from its mistakes. This, along with effective and meticulous execution, will inspire confidence in lenders. Currently, a lot of capital is locked up in stalled projects. There are moves to release that capital in the next 12-24 months through new instrumentalities. He described these as good moves that will open up new opportunities. “No one can stop the advent of technology,” he said, adding that the reticence has been “driven by the shock therapy of the last few years.”
Terdal agreed that the opportunities are huge. But they are also fraught with challenges, and he wondered how many corporates can take on these challenges. “The answer is not so encouraging,” he lamented. “The opportunities are there, but what is important is to prepare ourselves to face them.” Issues such as unnecessary bureaucracy, lack of clarity in the clauses, and non-availability of land must be addressed. He pointed out that developers are forced to go to NBFCs because of the several restrictions in procurement of bank finances. Some of these issues can only be addressed by the government. If the regulations are simplified, developers and investors can take reasonable commercial risks.