Loan arrangers eye smaller banks, global finance to get over lending constraints.
Major banks which regularly lend to the power sector are shying away from lending more, as most are hitting sector exposure limits. Banking sources say as many as six major banks which regularly lend to infrastructure are rejecting proposals to lend to power projects.
While group exposure limits to the sector are fixed by the Reserve Bank of India (RBI), the board of directors of each bank fix internal exposure limits to each sector. On an average, banks fix a lend-limit of 15-20 per cent of their net worth to infrastructure. As the power sector went through massive expansion in the past three years, most banks have exhausted these limits.
While announcing its quarterly results, Dena Bank's chairman and managing director, R L Rawal, said the bank was cautious in extending credit to the power sector, as its exposure had already touched sectoral limit.
"The bank does recognise it is an important sector that needs funds on priority. At the same time, we would like to ensure there is no concentration risk on power sector exposure," said a Dena Bank official who refused to be identified.
Wider search
Banks which also double as loan syndicators complain it is tougher for them to find lenders. This is forcing them to look at smaller banks, which would contribute smaller amounts to finance a project. "We might have to go for smaller banks even if they lend around Rs 100 crore (only). Smaller banks would earlier not participate in funding large projects; they’ll now be welcome," said a top official of a public sector bank.
The number of participants in a loan would also go up. Earlier, it used to take 12-13 banks for financial closure of a large sized project. Now it might take 20 banks for a single financial closure, forcing syndicators to look at new avenues of debt raising.
International loans are an option bankers are now eyeing. "We may have to look for loans from international sources as well. Loans can be availed as long-term credit or supplier's credit to fund equipment purchases. There is appetite in the overseas market and some suppliers are willing to arrange loans through their Ex-Im banks," said B K Batra, executive director, IDBI Bank. Reliance Power recently re-financed a part of its loans with credit from Chinese banks, as it imports most of its equipment from the country.
Syndicators are also expanding their coverage to institutions like Life Insurance Corporation and India Infrastructure Finance Co. Urban co-operative banks might be approached for loans, too.
Pool availability
"Our outlook on the infrastructure sector is positive. We do get certain tax benefits for infrastructure credit. The bank has risk appetite and has provided finance to a few projects. But infrastructure needs long-term credit, while most deposits have maturity of a maximum three years. This constrains our capacity to take exposure," said Eknath Thakur, chairman of Saraswat Co-operative Bank, Mumbai.
R Sridharan, managing director of State Bank of India, said there is a need to enhance the ceiling limit for infrastructure lending by banks. SBI itself fixed a huge limit of Rs 1 lakh crore to finance infrastructure projects.
“In long-term financing, often huge asset-liability mismatch can come up. Moreover, commercial banks have some limits to finance infrastructure projects,” he said.
IDBI says it will continue to lend to the power sector. "The power sector requires chunky assistance; that is the nature of the business. A bank's internal exposure limits have to be aligned, among other things, to the business opportunities available in the country. One cannot set the same limits for power and other sectors like textiles or cement or even the highways sector, which have around one-fifth of the requirement of that of power," said Batra.
The annual capacity addition targets of the power sector are around 15,000 Mw, taking yearly investment needs of the sector to Rs 75,000 crore. Of this, debt requirement is around Rs 52,500 crore. "There are quite a few projects which are currently awaiting financial closure. Also, two ultra mega power projects might seek bids this calendar year and funding those massive projects, which cost around Rs 22,000 crore (each), would be a huge constraint," said Debashish Mishra, senior director, Deloitte Touche Tomatsu.
