|Still a long road ahead|
|Thursday, 17 July 2014 00:00|
SLR/CRR-free infra bonds for banks not a sure shot
Going by the large quantum of NPAs and recast loans, banks have burnt their fingers badly in infra financing over the last decade or so. While several of the projects have been derailed because of delayed clearances or the lack of fuel linkages, there are instances of promoters having stalled the venture either because they haven’t been able to cobble together the equity contribution or because the project is no longer viable. Either way, banks clearly failed to assess the risks with regard to both the project and the promoters. In the first place, however, it was never fair to ask banks to shoulder the responsibility of funding infra projects given their liabilities are of a short-term nature whereas the loans need to be of much longer durations. Moreover, since the banks wanted to recover the money in about ten years, they were pricing in higher returns which backfired because all that happened was that the loans slipped. RBI has now made it easier for them by increasing the life of loans to a longer 25 years and allowing a refinancing, on fresh terms, every five to seven years. That will make it easier for the promoters since the repayment schedule will be more closely aligned with the life-cycle of the project and, in turn, should lower the risk of the loan becoming impaired since it will be correctly priced.