RBI's new rules have road ministry worried for its grand highway plans

MoRTH has identified 53 BoT (toll) projects for a length of 5,200 km worth  ₹2.1 trillion for award in coming year, (Photo: Bloomberg)
MoRTH has identified 53 BoT (toll) projects for a length of 5,200 km worth 2.1 trillion for award in coming year, (Photo: Bloomberg)

Summary

  • The ministry's concerned if RBI's proposed rules could derail its plan to revive its build-operate-transfer projects for highways, where private investment is expected to return after a long interval
  • The road ministry has identified 53 toll projects worth 2.1 trillion for award in the coming year

The Union road ministry is evaluating the central bank's draft guidelines mandating higher provisioning on loans for infrastructure projects, and may raise the issue with the finance ministry to ensure the new rules don't derail its grand highway-building plans, two persons aware of the development said.

The ministry of road transport and highways (MoRTH) has received several representations from industry executives urging it to make a case for the infrastructure sector with the Reserve Bank of India and the finance ministry, as the stiff provisioning rules could potentially dry up bank finance for infrastructure projects and make loans costlier, these people said.

The immediate concern for the sector is whether the changes would derail the ministry's plan to revive its BoT (build-operate-transfer) projects for highways, where private investment is expected to return after a long interval. 

The ministry has identified 53 BoT (toll) projects for a total length of 5,200 km and worth 2.1 trillion for award in the coming year. So far, bids for seven projects with a total length of 387 km and worth 27,000 crore have been invited.

According to one of the two persons mentioned above, the ministry is gathering suggestions from the industry that would help it present a case for the sector and seek changes in the draft regulations. The consultative process on the draft ends on 15 June. 

“Not only banks, but the views of the sector that would be most impacted by RBI's revised guidelines would have to be heard before finalising any changes in provisioning norms," this person said.

The ministry of road transport and highways didn't immediately reply to Mint's queries.

Also read: Infra financing guidelines: Why are banks upset?

“The RBI draft regulations would be a big negative for the roads and highways sector and could dry up investments in the absence of requisite funding from financial institutions," said P.C. Grover, director general of the National Highways Builders Federation, a lobby group. 

“We plan to put our request for a review or withdrawal of the changed norms of classification of assets in the infrastructure sector requiring higher provisioning during construction stage with the MoRTH so that the concerns get heard and addressed during the consultative process for finalising the draft regulations," Grover said. 

“Our concern is that BoT projects would take a heavy toll as private investment would not flow if funds become expensive or banks become reluctant to provide credit to the industry."

Private sector investment

The choking of private funds to the infrastructure sector could be a setback, as growth so far has been supported through higher public spending. 

Private investment in the sector has been low since the failure of several BoT projects a few years ago. But in financial year 2023-24, private sector investment showed signs of revival, accounting for more than 30,000 crore out of the total capital expenditure of 3 trillion in the infrastructure sector.

Also read: Road ministry blames Union cabinet for delay in awarding of highway contracts

RBI's recent draft guidelines—‘Prudential Framework for Income Recognition, Asset Classification and Provisioning pertaining to Advances — Projects Under Implementation’—propose a phased 5% standard asset provision during the construction phase, rising sharply from the current 0.4% level. 

Once implemented, this is expected to substantially reduce availability of banking finance to infrastructure sector while also potentially spiking interest rates on project loans.

Murmurs for a review of the draft guidelines have already begun in the financial sector, with banks likely to put across their views under the aegis of Indian Banks' Association soon. 

Punjab National Bank managing director and chief executive Atul Kumar Goel said on Thursday that the state-run lender would seek a clarification from RBI on whether the higher provisioning would be applicable to all categories of small infrastructure loans as well. 

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

topics

MINT SPECIALS