NaBFID MD says infra loan losses low, questions RBI's 5% provision proposal

Infra financier NabFID's managing director Rajkiran Rai on Friday questioned the RBI proposal to make lenders set aside 5 per cent on under construction projects, saying the reverses on such loans are very low.

Stating that there is a need to change perceptions surrounding infrastructure finance, Rai said the incidence of loans turning sour has reduced in the recent past and added that the same is evident in the risk-based pricing for such finance by banks.

"Where is 5 per cent coming from? Actually it (NPAs on infra loans) is less than 1 per cent," Rai said addressing the annual Fibac event here.

 

He conceded that if one looks at a ten-year period, the 5 per cent number may look true, but the same has improved drastically and added that infra loans are coming at as low as 8.75 per cent, as per a NaBFID study.

It can be noted that a few weeks ago, the RBI came up with draft guidelines reviewing the rules governing project finance which call for banks to set aside 5 per cent as provisions for under construction projects.

Bankers have been peeved at the proposal and are reported to have opined against going ahead on it, while those in support of the move also say the number is a conservative one.

Last week, a senior RBI official had said that the central bank is pursuing the feedback and final guidelines on project loans will come in 2-3 months.

On Friday, Rai said NabFID has started an exercise of collating the exact data on loan losses on infrastructure finance so that it can lobby better with the regulator.

Later, he told reporters that the data collation may take more than one year which will mean that it comes after the final guidelines on project loans come out.

He claimed the default on hybrid-annuity model road projects and solar projects --two of the busiest categories under infra lending -- is "zero" at present and recalled a turnaround.

In 2015-16, bankers were reluctant to lend to HAM projects but at present they have become the flavor of the season and there is "tremendous competition" among lenders for them, he said, adding that 60 per cent of the incremental infra lending is to the roads sector.

Apart from the low pricing by banks which features in the low risk element, Rai said global private equity majors are taking stakes in such projects and wondered why there should be any impediments.

There is a need for changing the entrenched perception on infra financing being a riskier business, he said, re-asserting that defaults are "almost zero".