Rating agency Crisil today said banking system could increase their funding capacity to the infrastructure sector by Rs 1,00,000 crore over the next four years, without impacting their asset-liability profiles.
This can be done by refinancing infrastructure project loans through debt capital markets. This amount constitutes nearly 20% of the banking system's total exposure to infrastructure, Crisil said in a statement.
For this to happen, however, the banking sector needs to make two fundamental changes in its lending approach to infrastructure, it said in a study.
First, the banks should adopt a model of -- originate, carry, and refinance for their loans to infrastructure projects, against the current model of originate and hold.
Under the new model, banks will originate project loans and then carry them only for a shorter period comprising initial three to four years till the project is constructed, commissioned, and stabilised, it said.
The banks should then encourage refinancing these loans through the bond market to a new set of investors, who have a longer-term investment horizon and capacity, it added.
Second, the banks need to evolve their pricing strategy for such loans to make it more risk-based, it said.
Since under the 'originate, carry, and refinance' model, the banks will carry infrastructure loans only for the initial few years, the pricing should adequately reflect the associated project-level risks of construction and stabilisation, which are usually higher, it said.
Therefore, it said, the interest rates that banks charge need to be higher during this phase. At the time of refinancing, however, the interest rates will reduce, indicating the lower risks inherent in the credit quality of operational infrastructure assets.
Clear benefits exist for other stakeholders as well, it said, adding, the bond investors, who prefer lower risk assets, can be assured of a regular flow of quality, long-term duration investment options.
