Indian banks have lent Rs482,189 crore for infrastructure projects as on 19 November, according to rating agency CARE Ltd. A gap in the maturity profile of loans and deposits has increased in the recent past due to slower deposit mobilization by banks. “One of the solutions to increase fund availability to the sector is to raise the foreign investment cap in corporate bond further and reserve the increment for investments only in the sector,” said Soujanya Pantula, head of public sector bank ratings at CARE.

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Posted: Tue, Feb 8 2011. 10:43 PM IST
Loan-deposit
mismatch may hit bank
lending to infra sector
The sector needs an estimated $1 tn in the
next five years; lack of funds could slacken
the pace of overall growth
Anup Roy & Dinesh Unnikrishnan
Mumbai: Indian banks are likely to slow lending to infrastructure developers
as they face an increasing mismatch between their deposit and loan portfolios.
“Many banks are close to exhausting their internal limits set for infrastructure
firms,” said state-run Andhra Bank chairman and managing director R.
Ramachandran.
“We may not see the same pace of expansion, in terms of credit disbursement
to the infrastructure sector, in the next two years that we have seen in the
past two years.”
The lenders are finding
it difficult to finance
high-value projects
that have repayment
schedules of up to 15
years compared with
most deposits
maturing in one-three
years.
Officials of many state-
run banks said they
have either reached or
fast running out of
Funding trouble: Bankers are seeking permission to
available headroom
float long-term tax-free infrastructure bonds.
due to shortage of
resources and sectoral exposure limits set by the Reserve Bank of India (RBI).
RBI rules say a bank can only lend up to 15% of its capital to a single
borrower and 40% of capital funds in the case of a borrower group. This
makes lending to infrastructure companies even more difficult for smaller
banks.
“Maximum loan proposals are coming from this (infrastructure) sector. All are
big-ticket proposals,” said P.K. Anand, executive director of Punjab and Sind
Bank. “Banks will have to see their loan book and see what their headroom
available for lending.”
T.M. Bhasin, chairman and managing director of Indian Bank, said his bank
has reached 75% of its internal limit for the power sector while for other
infrastructure segments, it has exhausted 60-70% of the limit. Of its limit of
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Rs15,000 crore for infrastructure, the bank has already lent about Rs10,500
crore.
Indian banks have lent Rs482,189 crore for infrastructure projects as on 19
November, according to rating agency CARE Ltd.
Shortage of funds to finance long-term projects could slacken the pace of
economic growth as banks are expected to fund a significant portion of an
estimated $1 trillion required in the next five years.
A gap in the maturity profile of loans and deposits has increased in the recent
past due to slower deposit mobilization by banks.
Bank deposits have grown at 16.4% compared with the 17% target set by the
central bank for the fiscal year ending 31 March. Credit is growing at a much
faster rate of 23.6%, RBI data show.
Central bank governor D. Subbarao said on 25 January that a rapid credit
growth without a similar increase in deposits was not sustainable.
“The Reserve Bank will constantly monitor the credit growth and, if necessary,
will engage with banks which show an abnormal incremental credit-deposit
ratio,” Subbarao said in the third-quarter review of monetary policy.
The mismatch between loans and deposits have widened in recent years due
to increased infrastructure lending and lower deposit collection, CARE data
show.
Indian banks have 28% of deposits and 37% of advances in the 1-3-year
bracket as on September. Beyond five years, it is 20% for deposits and
17.5% for advances.
Nearly half of the lending was to fund power projects and nearly 20% was
given out in to telecommunications firms, the agency said.
Bigger banks, too, have started feeling the heat of a rising asset-liability
mismatch. Bank of India has lent about 24% of its advances to infrastructure
against its internal cap of 30%.
Bank of Baroda executive director R. K. Bakshi said the bank’s exposure to
the power sector has reached its ceiling and the bank is “going cautious and
selective on power projects.”
While headroom is available for different industries in infrastructure, Bakshi
said managing the asset-liability mismatch will be a challenge “the way it is
building up.”
Analysts say raising the foreign investment limit in the local corporate bond
market and routing that money to develop country’s infrastructure sector
could be a way out.
“One of the solutions to increase fund availability to the sector is to raise the
foreign investment cap in corporate bond further and reserve the increment
for investments only in the sector,” said Soujanya Pantula, head of public
sector bank ratings at CARE.
Bankers are also seeking permission to float long-term tax-free infrastructure
bonds on the lines of firms such as Infrastructure Development Finance Co.
Ltd and India Infrastructure Finance Co. Ltd (IIFCL). IFCL plans to do take out
financing for banks worth Rs3,000 crore by March from over 10 banks, chief
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executive officer S. K. Goel said. It has already approved proposals for
Rs1,500 crore, he said.
“We are aware of the problem of asset-liability mismatch and feel that current
(business) group exposure norms are high,” Goel said. “This has to be
addressed. Banks feel that they are reaching saturation point.” Infrastructure
firms, however, said there are no immediate concerns of bank funding drying
up.
“There is no immediate concern as the banks will take time to implement if
RBI issues any guidelines on the infrastructure lending,” said Issac A. George,
director and chief financial officer at GVK Power and Infrastructure Ltd said.
anup.r@livemint.com
P.R. Sanjai contributed to this story.
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