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RBI Deputy Governor R Gandhi on Wednesday said there is a need to look for sources other than bank finance for funding infrastructure projects in the country.
“The exposure of banks to infrastructure and real estate sector cannot increase much beyond the current levels,” the RBI Deputy Governor said while addressing a session on Real Estate and Infrastructure Financing at the FICCI-CAPAM 2014.
As a prudential measure, banks are not allowed to lend more than a fourth of their total loans to the infrastructure and the real estate sector.
“The exposure cannot be much beyond this. We are concerned about extra exposure of the banking system to these sectors,” Gandhi said.
It is estimated that the infrastructure segment will need a cumulative investment of $1 trillion in the current Five-Year Plan (ending 2017) to sustain a healthy economic growth.
However, investments in the sector have been hard to come by.
Gandhi added, “Infrastructure is a segment which should have been supported by institutions beyond banks, but unfortunately in our country such institutions have not risen to that kind of financial position. So, banks have accepted the additional responsibility to fund this sector and the exposure of banks to this sector has more than doubled over the past year to Rs8,40,000 crore.”
He clarified that there will be a natural growth of 18-20 per cent every year in bank funding to these segments. However, this will not be sufficient.
“The exposure of banks to infrastructure and real estate sector cannot increase much beyond the current levels,” the RBI Deputy Governor said while addressing a session on Real Estate and Infrastructure Financing at the FICCI-CAPAM 2014.
As a prudential measure, banks are not allowed to lend more than a fourth of their total loans to the infrastructure and the real estate sector.
“The exposure cannot be much beyond this. We are concerned about extra exposure of the banking system to these sectors,” Gandhi said.
It is estimated that the infrastructure segment will need a cumulative investment of $1 trillion in the current Five-Year Plan (ending 2017) to sustain a healthy economic growth.
However, investments in the sector have been hard to come by.
Gandhi added, “Infrastructure is a segment which should have been supported by institutions beyond banks, but unfortunately in our country such institutions have not risen to that kind of financial position. So, banks have accepted the additional responsibility to fund this sector and the exposure of banks to this sector has more than doubled over the past year to Rs8,40,000 crore.”
He clarified that there will be a natural growth of 18-20 per cent every year in bank funding to these segments. However, this will not be sufficient.
Corporate bond market
To diversify the sources of funding to the sector, the RBI has tried to deepen the corporate bond market along with institutions such as SEBI. However, the efforts are yet to bear significant results.
The RBI has also allowed banks to raise long-term (with maturity of at least seven years) bonds, on liberal terms, for funding infrastructure and low-cost housing projects.
In the past few months, only two banks have utilised this facility, probably because of low demand from companies for infrastructure loans.
“It (bonds by banks) is in the offing. They have to have projects. Right now, the banks do not seem to have many,” Gandhi added.
The Government, on its part, has been trying to lure foreign investments into the sector but big ticket investments are yet to find their way into the country.
Source : The Hindu
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