Perception of infrastructure financing needs to change: NaBFID MD

Mumbai: Despite strong asset quality for the last 5-6 years, infrastructure financing is considered a ‘risky business’ owing to a negative perception around the segment due to past experience, said Rajkiran Rai G., managing director, National Bank for Financing Infrastructure and Development (NaBFID).

At a time when global private equity (PE) funds are looking to invest in the sector, Indian institutions remain skeptical, Rai said, adding that “somewhere the perception has to change”.

He was speaking at a panel discussion at the Fibac banking conference organised by Federation of Indian Chambers of Commerce and Industry (Ficci) and Indian Banks' Association (IBA).

NaBFID finding it easy to raise, invest capital in infra projects

The industry “talks superficially about risk” but NaBFID is finding it easy to raise and invest capital in infrastructure projects, he said.

“We all talk of risk in infrastructure. If the risk in infrastructure sector is high, it should reflect in higher rates because that is how risk pricing happens,” Rai said, adding that NaBFID did a study which showed that the average rate for infrastructure loans over the last 2-3 years was 8.75%, only slightly higher than say a housing loan average of 8.50%.

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“In the last 5-6 years data, infrastructure defaults are almost zero. Bankers’ perception of the risk about infra is reflecting in the price,” he said, adding that the same goes for the power sector, be it solar or wind.

While banks were reluctant to lend towards HAM (hybrid annuity model) projects in 2015-16, the segment now accounts for 60% of incremental credit to the infrastructure sector because lenders believe it to be safe, said Rai.

He highlighted that the cumulative assets under management of insurance, pension and provident fund at ₹150 trillion means that the required funding is available domestically, but that certain enablers and policies need to be put in place to support growth.

Hinting at the RBI’s recent norms mandating 5% provisioning cover for infrastructure and related projects, Rai said that the number has been arrived at by looking at the past 10-year data.

“That is the number if you look at 10-year period data. But is 5% true?” he wondered, adding that bankers will confirm that there have been zero defaults on HAM and solar financing.

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“But then, you don’t have data to talk to the regulator. You need to have the data. Actually, we have started the exercise of picking up the NPAs (non-performing assets) in the system and trying to arrive at some number,” he said, adding that the lack of credible and accurate data is something that NaBFID is looking to address.

“We have taken the responsibility to build a correct data repository. We are already working with the government departments so that this data is made available and can aid lenders in better assessing and pricing the projects.

“It will be a verifiable data. There is a proper process of combining and putting out that data. Once it is in public domain, the data repository comes in,” he said. NaBFID should be able to come out with the first cut within one year, but the database will be a “work in progress” for 3-4 years, he told reporters on the sidelines.