The Industrial Development Bank of India (IDBI) is pitching for a hike in the 15 per cent (of their assets) sectoral cap governing financial institutions' term-lending advances. A top IDBI executive said here on Monday that the FI had touched the 11-12 per cent mark in the power sector already.
Under the exposure cap that limits FI and bank lending to various sectors, the financial intermediaries are not allowed to lend more than 15 per cent of their assets to any particular sector.
This is prescribed by the Reserve Bank of India as part of its strategy to minimise risk.
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Until now the cap did not hinder lending to capital-intensive sectors like power and telecom, but it has started "pinching", FI sources said.
Explained a senior IDBI executive: "About one-third of our total sanctions are going into infrastructure now. Of the Rs 5,780 crore (loans) we approved in the first quarter this year, about Rs 1,900 crore was given to infrastructure."
Most of this, other IDBI sources revealed, has been extended to power projects. Therefore, the exposure to power has increased to 11-12 per cent of its total assets.
The FI has a total asset base of some Rs 60,000 crore. The 15 per cent cap sectoral cap would mean that it has between Rs 1,800 crore and Rs 2,400 crore left to be extended to the power sector.
On the other hand, the constraints imposed by the sectoral cap has not yet become a problem for other financial institutions. Sources in Industrial Finance Corporation of India said here yesterday that the FI's exposure was "nowhere near the cap" and it has sufficient comfort before reaching the limit.
Industrial Credit and Investment Corporation of India had lent some 6-7 per cent to power projects, according to an estimate earlier this year.
Finance industry sources expect the finance ministry and RBI to raise the sectoral cap on lending.
According to them, the central bank "has to do it if infrastructure lending is to take off". They point to the relaxation some months back of the 25 per cent group exposure cap which has been raised to 40 per cent.
A significant portion of the FIs' lending to infrastructure projects (Rs 14,000 crore for IDBI and ICICI) in the last year and the first quarter of this fiscal has taken place through infrastructure bonds eligible for tax breaks under Section 10 (23g) of the Income Tax Act.
Under the section, income by way of dividend, interest and long-term capital gains from investments in infrastructure projects in sectors like power, telecom, surface transport and urban infrastructure are exempt from paying tax.
IDBI has been among the most active in picking up infrastructure bonds floated by telecom service companies.
Last year, Reliance Telecom had placed a significant chunk of its Rs 600 crore bond issue with IDBI.
The FI had also participated in the bond issue of Tata Teleservices, the Andhra Pradesh basic telecom licensee. It also plans to pick up bonds of some other telecom companies.