BackBanks may lower land acquisition norms for loans to road projects
Banks can sanction the loan when 80% land has been acquired, says an official
Premium(Indranil Bhoumik/Mint)
New Delhi/Bangalore: The finance ministry has directed banks to lower the land acquisition requirement for disbursing loans to road projects, seeking to ease the flow of funds to the crucial infrastructure sector.
In a notification sent to banks, the ministry asked the lenders to switch back to an earlier norm that mandated disbursal of loans to projects that had completed 80% of their land acquisition instead of the current requirement of 100%.
An executive at a leading bank and a senior government official, both of whom did not want to be identified, confirmed the development.
The government official said the decision to ease the loan disbursal process was taken at a meeting of a committee of secretaries—top civil servants—recently. The committee is headed by the cabinet secretary and includes secretary, department of financial services, ministry of finance; and secretary, road transport and highways.
“Banks can sanction the loan when 80% land has been acquired. With this, the developers will get some cushion as the uncertainty around the funding will come down," the government official said.
Road projects—like most infrastructure works—have been delayed by bureaucratic red tape that stalled mandatory approvals, hurdles in completing land acquisition and a funding crunch.
The notification to banks followed letters written by Vijay Chhibber, secretary, ministry of road transport and highways; and R.P. Singh, chairman, National Highway Authority of India, requesting the ministry of finance to reverse the move to raise the norm relating to land acquisition for availing of bank loans.
“The new requirement of 100% land acquisition almost stopped the flow of credit from banks to the road projects. Developers suddenly had no access to loans. It was also one of the main reasons for the slowdown in the road sector that we saw last year," said another senior government official who also requested anonymity. The earlier secretary, department of financial services D.K. Mittal, during his term had tightened the lending norm, as huge sums of bank money was stuck in projects due to lack of clearances, the second government official added.
“It will immensely help the existing projects where developers have put in equity but were facing constraints on the debt side," said Athar Shahab, chief executive officer of infrastructure company, Uniquest Infra Ventures Pvt. Ltd, about the move to lower the requirement. “Even good projects have been stuck because of this. Even as we welcome the development, we still have concerns about the remaining 20% being acquired. The government must ensure that the entire 100% land is made available in a timely manner for a project to deliver full value."
This is the second move by the government to ease lending to the infrastructure sector. In March, the Reserve Bank of India asked banks to consider a public-private partnership infrastructure project as “secured" as long as the user or toll charges are kept in an escrow account where senior lenders have a priority over withdrawals by the concessionaire and lenders have a right to trigger termination in case of default in debt service.
The move was aimed at increasing the availability of credit to the infrastructure sector at a cheaper rate of interest.
The banking industry may still have some concerns. The banker cited above said, “We received the notification three-four days back. The only issue is that for projects where there are existing roads but they are being widened say from two lane to four lane or four lane to six lane, the existing alignment cannot be treated as meeting the land acquisition requirement. The condition for loan disbursal should be that 80% of the additional land required for widening the road be acquired."
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