Allow IFCs to acquire stressed assets from banks like ARCs; issue tax-free bonds & raise ECBs
Apex industry body ASSOCHAM has suggested the government for allowing infrastructure finance companies (IFCs) to purchase infrastructure projects turning into non-performing assets (NPAs) and retain them as standard assets to bring the infra sector back on growth trajectory and relieve banking industry from a stressed portfolio.In a note submitted to the union Finance Minister (FM), Mr Arun Jaitley, The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has stated, In the context of growing NPAs at an alarming rate, the non-banking financial companies (NBFCs)/IFCs should be allowed to take over stressed assets from banks in similar fashion as the asset reconstruction companies (ARCs) by issuing security receipts (SRs).
ASSOCHAM believes that infrastructure assets never go bad as they constitute public utility, these projects need re-engineering, both financial and technical as promoters often either run out of resources or are unable to manage the risks.
The need of the hour is to create an enabling environment to promote growth of IFCs as they can alleviate funding problem into infrastructure sector, said Mr D.S. Rawat, secretary general of ASSOCHAM.
Providing regulatory support will strengthen the IFCs and encourage them to take greater exposure in infrastructure projects and facilitate them in taking over stressed assets from banks' balance sheets to revive stuck projects and expedite their implementation, said Mr Rawat.
Government should actively consider putting in place separate norms for NPA classification for infrastructure and non-infrastructure loans as using only the overdue period yardstick for classifying infrastructure loans as NPAs is too general and can eventually lead to systematic risks, suggested ASSOCHAM.
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It has recommended the government to allow IFCs to issue tax-free bonds to help them mobilise long-term financing and use the funds for infrastructure development.
If these institutions are able to provide attractive rates on their bonds which are constantly over and above the consumer price index (CPI) inflation figure, they are likely to tap a part of the public savings which would otherwise go into unproductive assets like gold.
ASSOCHAM has also recommended the government for allowing IFCs to raise external commercial borrowings (ECBs) under automatic route without cap of 75 per cent including outstanding ECBs as it would help them disburse faster to infrastructure sector.
Further, the chamber has suggested encouraging long-term repositories like pension funds, provident funds and insurance funds to subscribe to bond issues by IFCs. There is too much reliance on bank funds for financing infrastructure projects which need long-tenure funding while bank deposits are usually short-term in nature thereby leading to asset-liability mismatch.
ASSOCHAM has suggested the government that NPA recognition norms for NBFCs should be kept at above 180 days as they are better equipped to finance small and medium enterprises which cannot be financed by banks.
In its letter to the FM, the apex chamber has recommended that IFCs should be allowed to deploy a minimum of 50 per cent of their total assets in infrastructure loans instead of present requirement of minimum 75 per cent as it exposes IFCs to high risk on their balance sheet which might lead to systemic risk in the event of prolonged stress in infrastructure sector.
By allowing 50 per cent deployment in non-core assets, IFCs will also enjoy flexibility in terms of managing its day-to-day operations.
ASSOCHAM has requested the government for reducing minimum capital to risk-weighted assets ratio (CRAR) to 12 per cent from existing 15 per cent to help them contribute more towards infrastructure creation as capital gets locked-in infrastructure financing for substantially longer terms.
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