Photo: Mint

Photo: Mint

Ministry wants banks to follow uniform loan approval criteria

Ministry wants banks to follow uniform loan approval criteria

New Delhi: The finance ministry wants state-run banks to follow a consistent risk-assessment approach while sanctioning loans to help ease funding constraints for large projects.

“Sometimes one bank may refuse a loan to a company for a particular project, but another bank may give the loan for the same project. The finance ministry wants a more uniform approach to ensure that such projects are not stalled because of this," said an official with a public sector bank.

Officials of the finance ministry and state-run banks had a preliminary meeting recently to discuss the issue, said bankers who attended this meeting.

Most banks have their own risk-assessment criteria that evaluate the promoter’s track record, the financial viability of projects, and whether all ministry clearances are in place. While banks assess risk for loans up to 50 crore internally, credit rating agencies do so for sums in excess of that.

Photo: Mint

“Larger banks have more risk appetite and could give large loans. But smaller banks may not be in a position to do it," said a banker. “Also, banks have to adhere to internal sectoral exposure limits. We will continue to follow our existing methodology till a formal circular is issued by the finance ministry."

The finance ministry has been trying to remove bottlenecks facing various infrastructure projects, including problems related to clearances and funding. Loans to the infrastructure sector dropped 16% in the first quarter of the current fiscal, according to Reserve Bank of India data.

As availability of funds for the infrastructure sector, particularly in the road sector, is getting tighter, the road transport and highways ministry has been pushing for the treatment of bank loans to road projects as secure debt. The issue was discussed at a meeting of senior road transport and highways ministry officials, road developers and financial institutions last month.

The sectoral exposure limits of banks have curbed funding for road projects, said M. Murali, director general of the National Highway Builders Federation. “With projected toll collections declining due to the slowdown in economic growth and interest costs for loans having gone up, it is getting increasingly difficult for us to get funds for projects," he said.

Loans to infrastructure projects have slowed because of several issues, including regulatory hurdles, said Manish Sharma, partner at the capital projects and infrastructure practice of PricewaterhouseCoopers.

“Banks are taking a conservative view on loans to road projects particularly because of the aggressive bidding in some of them despite declining projected toll collections generally," he said.

remya.n@livemint.com

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