The Reserve Bank of India should define exposure as the outstanding or commited loans and gurantees, and not include uncommitted part of sanctions while computing exposure.
The Confederation of Indian Industry (CII) has called for changes in the industry exposure norms by financial institutions and banks as well as provisioning guidelines to accelerate the flow of funds from the financial system into the infrastructure sectors.
According to the industry association, exposure to infrastructure projects sanctioned on a limited/non-recourse basis should be excluded from computation of group exposure.
Besides, the Reserve Bank of India should define exposure as the outstanding or committed loans and guarantees, and not include uncommitted part of sanctions in the computation of exposure.
CII has pointed out that infrastructure project disbursals are done over a period of at least two-three years and the uncommitted part of the sanctions typically mature over a period of time.
"The limit on group exposure of 50 per cent of the net worth is a serious limiting issue in financing infrastructure projects and a view needs to be taken on its liberalisation," says a report prepared by CII on infrastructure financing.
The rationale of having group exposure limits is that, as there may be free flow of resources between companies within a group, any adverse change in one company affects its sibling companies. Accordingly, a lender's exposure in other group companies is also put at risk.
"While this is logical in conventional industrial businesses, large infrastructure projects financed on project risk basis are carefully structured with elaborate risk allocation and incorporate mechanisms to ensure that cash flows of the company are under the control of the lenders," says the CII report.
In such cases, commitment of the sponsor group is limited to its equity contribution (including contingent equity on account of any sponsor support obligations) and equity returns secured only out of the residual cash flows of the company after meeting all other obligations.
Under this scenario, says the report, group exposure norms may not be strictly relevant and need to be modified to reflect the financing structure in respect of infrastructure projects.
The CII report has also recommended changes in the provisioning norms, saying that security shortfall needs to be computed based on the value of the business rather than on the value of the physical assets.
Financing of infrastructure projects is based on cash-flow, rather than the physical asset creation. In a typical
