SBI exposure to infrastructure sector touches Rs 1,300 cr in Q3

State Bank of India (SBI) has sanctioned Rs 1,300 crore towards infrastructure projects in the third quarter (October-December) of the current fiscal.

The sanctions have been made through the recent joint financing agreement between the country's largest bank and the Life Insurance Corporation (LIC). SBI's exposure to infrastructure has surged to Rs 28,000 crore from Rs 26,700 crore as on September 30.

The projects being financed through the new agreement include Hindalco's Rs 4,000-5,000 crore worth expansion of its aluminium plant in Uttar Pradesh. SBI has sanctioned a Rs 1,000 crore loan for this project, said bank officials.

The remaining amount will be arranged through a loan syndication. Another project in the pipeline is the Rs 700-800 crore capacity addition by the Gujarat Industrial Power Corporation. SBI, along with LIC, is set to sanction a Rs 200 crore loan for this project.

According to officials, the progress of infrastructure projects has been slow.

"There are not many projects coming up. There appears to be a reluctance from the side of borrowers since there is uncertainty over the interest rate scenario," said officials.

SBI and LIC are set to take up a Rs 350 crore exposure in the Rs 700 crore worth Tata Steel project to manufacture coke for the production of steel.

Both the institutions have sanctioned the loans in the band of 8.5-9.5 per cent, which will be linked to SBI's prime lending rate (10.25 per cent), with a tenure in excess of 12 years.

SBI and LIC entered into the joint financing agreement in October 2004. Through the agreement, the two institutions will jointly fund power, telecom, roads, ports, airports, tourism, agri-processing and warehousing.

The arrangement is aimed to mitigate the risk of asset liability mismatch for SBI and give LIC new investment avenues for long-term funds.

While SBI is likely to fund a project for the first eight years, the assets may later be switched to LIC. SBI also has plans to sell down the assets to its associates.