New Delhi: India’s ambitious plans of developing and upgrading highways—already behind schedule—could further be delayed because some banks are revisiting agreements with developers and revising the terms of their loans, say infrastructure firms.
This means most companies are unable to achieve financial closure—essentially to tie up funds—that government regulations require they do within six months of signing contracts.
Some banks are revising term sheets by raising interest rates or insisting on personal and company guarantees before lending.
Term sheets are agreements between lenders and borrowers that may specify interest rates, collateral and guarantees governing the contract.
At least five large highway projects under the fifth phase of the National Highway Development Programme are required to achieve financial closure in the next two months. The fifth phase involves widening 6,500km of highways to six lanes.
Construction hurdles: A file photo of construction work on NH58. At least five projects of the National Highway Development Programme have to achieve financial closure in the next two months. Rajeev Dabral / Mint
Of the five companies that won the five projects under the phase, one—IRB Infrastructure Developers Ltd—said funding had been tied up but reported a slight delay in availing of loans while another—Soma Enterprise Ltd—said though it had secured a so-called in-principle approval from bankers, it is yet to translate into a commitment.
The National Highways Authority of India’s plans to award some 10,000km of highways for redevelopment have been held up with companies challenging government auction guidelines.
The highway regulator has so far awarded less than 10 projects this year, while another 57 are in different stages of bidding.
An official with infrastructure firm KMC Construction Ltd said on condition of anonymity that the company’s bankers have revisited the earlier agreement, raising the interest rate and asking the company to increase its equity holding in the project, a 225km stretch of highway between Gurgaon and Jaipur.
“They went into all the details again. They even travelled 225km (the highway stretch) before agreeing (to disburse the loan),” he said.
“I have never heard of this happening,” said Amrit Pandurangi, who heads the infrastructure and transport practice for consultant PricewaterhouseCoopers in India. “It indicates that banks are becoming more cautious.”
A senior official with Punjab National Bank, which saw a 28.1% growth in credit for the quarter ended September, declined to comment on new criteria for loans to individual companies, but said the bank had asked all branches to monitor existing assets carefully.
“We are trying to find a balance between credit growth and credit quality,” he said, asking not to be named.
Although banks are now beginning to reduce interest rates, infrastructure firms say borrowing terms are getting tougher, indicating that banks are now perceiving risks differently.
Finance minister P. Chidambaram said at a meeting on Tuesday that he was not aware of any changes in risk perception, but pressures on the banking system had increased because other sources of credit had dried up.
“Public sector banks have assured me they will deliver credit at an appropriate price, having regard to the credit-worthiness of the borrower and risks involved,” he said.
To be sure, infrastructure projects still constitute attractive investments in a facilities-starved country such as India. The Planning Commission estimates the need for Rs20 trillion in investments in infrastructure in the country over the next five years.
“A pharmaceutical company or any other corporate is not assured of state support in land acquisitions, steady users and a government-supported price,” Pandurangi said.
“If banks were lending to all projects earlier, you should question the banks, right?” said a senior government official who didn’t wish to be identified. “Viable projects will continue to get money.”
Sanjiv Shankaran contributed to this story.