LUNCH WITH BS: Surinder Singh Kohli

Infrastructure's banker

The man who reduced Punjab National Bank's net NPAs to near-zero, promises to shake things up in the country's infrastructure financing also.

I realised, thankfully, that there wasn't going to be too much of a fuss over the food when Surinder Singh Kohli dismissed the menu and asked for "the usual" as he sat down to Lunch with BS at the Tea House of the August Moon, the Chinese eatery at Taj Palace. The usual began with a hot-n-sour chicken soup for him and a vegetarian one for me, writes Vandana Gombar Ayyagary.

The former banker dabbles in a sector which would be considered by many to present the most significant challenge to the country "" infrastructure "" the inadequacy of which shaves a couple of percentage points off our GDP growth. To get it in shape would require about $475 billion over the next five years "" quite a task for an economy which is just about kissing the trillion-dollar mark.

India Infrastructure Finance Company Limited (IIFCL), the young government-owned company he heads (it is 20 months old) is expected to play a pivotal role in not only channelling funds to the infrastructure sector "" which includes roads, ports, airports and power "" but is also the anchor for leveraging a tiny part of the country's forex reserves of over $230 billion for development of the sector. Given the enormity of the funds required, isn't IIFCL's contribution likely to be a drop in the ocean? After all, the company is only targeting sanctions of about Rs 15,000 crore a year, which is less than the cost of one ultra-mega power project.

Kohli avers that his company's contribution to infrastructure financing "" currently limited to plain vanilla debt financing "" is substantial. "Further, wherever IIFCL has participated, financial closure has become faster," says Kohli, who is also a part of the Deepak Parekh Committee on infrastructure financing. The company has sifted through 100 projects so far and approved loans of Rs 15,000 crore for 64 projects, the biggest chunk (60 per cent) going to the power sector. The largest approval, in fact, is also to the power sector "" to Tata Power for the Mundra ultra-mega power project of 4,000 MW.

I am sceptical of the progress of the sector. The country probably requires tens of thousands of projects, and we are talking of progress in hundreds. What is being done is not enough even to make the country comfortable in infrastructure, forget about making us an infrastructure-rich country in the near future.

As we chew on the main course that has quietly been served "" fried rice with chicken Shandong style for him and mixed vegetables for me "" he talks about the changes that the capital city state of Delhi has seen over the last decade. It now boasts a metro, malls, multiplexes and multiple flyovers. "If it can happen in Delhi, it can happen everywhere. I am always optimistic," he says. While the 2010 Commonwealth Games are the trigger for a host of projects in Delhi, Kohli says that the impact of the Games would be countrywide and "the boost in travel, tourism and hotels will not be limited to Delhi."

As is well known, the southern states are ahead in the infrastructure game but the northern states are also waking up. Things, of course, move faster at the national level projects, which is where most of IIFCL's exposure is, barring two state highway projects. Projects in queue have, however, been afflicted with the slowdown syndrome these past few months.

Kohli wonders whether the tightening of the monetary policy "" which is aimed at limiting credit growth to 24 per cent "" has taken into account the funding required by infrastructure projects. "Last year, infrastructure advances were 107,000 crore from the banking system which is about 7 per cent of net credit. My hunch is that this percentage has to increase substantially from 7 to 13-14 per cent," he says.

And this needs to happen in the near term. The next five years are crucial for infrastructure according to him, but he stops short of saying that these are the make-or-break years. That is probably not the way this optimist "" who began by studying engineering, was pushed into a flourishing edible oil business after a family tragedy, and presided over its closure "" thinks. His own description of himself is a hard-working Punjabi who loves challenges. He began a banking career with Punjab and Sindh Bank at a monthly salary of Rs 100 in 1969, and went on to chair it. Subsequently, he chaired the Punjab National Bank (PNB), the nation's second largest bank.

"When I took over as the chairman of PNB, workers used to say PNB stands for Pata Nahi Bank ("going nowhere" bank)," says Kohli. He shook up the system, and the staff, and promoted it to a Pyaara Nyaara Bank (a darling bank). The bank listed in the same trying year as telecom firm Bharti "" in 2003 "when only two companies listed" "" at Rs 31. The next share sale, after two years, was at over ten times that value.

"In banks you have more autonomy. In banks you can make the things move faster...the system could move fast," says Kohli, who recounts how he managed a smart farmer training initiative (think e-choupal) while a banker. "There was a comprehensive two-page Business Standard supplement on the subject then. You can read about it there," he says.

Kohli is treading softly at IIFCL for now, but there are murmurs of what can change. The funding agency could substantially expand its 14-people-office and directly take on the appraisal of projects, instead of relying on other banks for that. It could begin taking equity in projects. In fact, there is a plan to invest $25 million as equity in the $2 billion infrastructure fund jointly floated by private equity firm Blackstone and IDFC "" the two entities which are also in the process of mobilising debt funds of $3 billion for disbursal by IIFCL.

He has also kept to his habit of doing off-beat things. Otherwise, IIFCL would not have funded a project to generate power from city-waste in Bangalore "" "It is not an easy project. No bank would like to enter into it" "" or co-sponsored the Rs 3,000 crore pooled municipal debt facility along with IDBI, Canara Bank and IL&FS to provide quasi-equity for raising loans. "A lot of work needs to be done at the local municipal level...there is no proper accounting or auditing at municipal corporations," says Kohli, who, like anybody even remotely associated with the infrastructure sector, underlines the importance of levying user charges to ensure service and service standards.

Kohli decides to skip dessert "" the reason that people like me go through the ritual of a meal "" and I manage to console myself. We end with a good old cup of tea and a dutiful read of our fortune cookies, which are pretty banal. Either we desperately need good fortune or these hotel guys, equally desperately, need a good copy-writer!