Emphasising that investment in infrastructure can be subject to market failures, an ASSOCHAM research paper has noted Gross Non-performing assets (GNPAs) and restructured standard advances for the vital sector together has gone up alarming level of 17.43 per cent of the banks’ total advances.
Most of the increase in the GNPA in the infrastructure sector has come about in the four-year period of March, 2009 and March, 2013 rising from just about 4.66 per cent to 17.43 per cent of total advances of the banks.
“Thus, continued expansion of bank finance to meet the infrastructure investment may not be sustainable as it may lead a growing concentration of risks on bank’s balance sheets. These risks emanate from the maturity mismatch by financing long terminfra projects from short term bank liabilities,” the ASSOCHAM paper authored by experts in the infrastructure financing said.
It said markets alone willoften fail to provide these services–either because an infrastructure project would not be profitable onits own, or because the associatedrisks are too large or too costly toinsure. As a result, infrastructureinvestment from the private sectorin many cases cannot be realisedwithout some form of publicsupport. This may take the formof direct financial support or someform of insurance.
In turn, the necessary involvement of a widerange of parties in infrastructure projects – construction companies, operators, government authorities, private investors, insurers and the citizens most directly affected – makeit a complex but essential task to design an efficient set of contracts.
“However much we may like it, the context and the ground reality brought about by the paper clearly points out that in the foreseeable future, Government will remain the key investor in critical infrastructure sectors, although PPPs could helpreduce fiscal constraints,” ASSOCHAM Secretary General Mr D S Rawat said. Increased private funding for infrastructure will also requirereforms to address the more binding constraints, related to the policy andregulatory environment.
In the last four – five years the credit to infrastructure grew at a faster pace than total credit. Consequently, the share of infrastructure in gross non-food bank credit rose from 8 per cent in March 2007 to more than 14 per cent in March 2012
But in the coming years public sector banks will need capital infusion of Rs2, 400 Billion by the year 2018 to be in line withBasel III norms. This is likely to act as a constraining factor in lendingoperations. But the FDI in the sector was not really impressive.
Cumulative FDI inflows into theinfrastructure sector were of theorder more than USD 25 Billionduring the 12th Plan and averagedUSD 5 Billion per annum.The breakup of FDI inflows revealsthat telecom sector was thehighest recipient of FDI inflows with a share of 40 per cent followed by power 24 per cent, petroleum & natural gas 19 per cent, transport 11 per cent and non-conventional energy 6 per cent.
Most of the increase in the GNPA in the infrastructure sector has come about in the four-year period of March, 2009 and March, 2013 rising from just about 4.66 per cent to 17.43 per cent of total advances of the banks.
“Thus, continued expansion of bank finance to meet the infrastructure investment may not be sustainable as it may lead a growing concentration of risks on bank’s balance sheets. These risks emanate from the maturity mismatch by financing long terminfra projects from short term bank liabilities,” the ASSOCHAM paper authored by experts in the infrastructure financing said.
It said markets alone willoften fail to provide these services–either because an infrastructure project would not be profitable onits own, or because the associatedrisks are too large or too costly toinsure. As a result, infrastructureinvestment from the private sectorin many cases cannot be realisedwithout some form of publicsupport. This may take the formof direct financial support or someform of insurance.
In turn, the necessary involvement of a widerange of parties in infrastructure projects – construction companies, operators, government authorities, private investors, insurers and the citizens most directly affected – makeit a complex but essential task to design an efficient set of contracts.
“However much we may like it, the context and the ground reality brought about by the paper clearly points out that in the foreseeable future, Government will remain the key investor in critical infrastructure sectors, although PPPs could helpreduce fiscal constraints,” ASSOCHAM Secretary General Mr D S Rawat said. Increased private funding for infrastructure will also requirereforms to address the more binding constraints, related to the policy andregulatory environment.
In the last four – five years the credit to infrastructure grew at a faster pace than total credit. Consequently, the share of infrastructure in gross non-food bank credit rose from 8 per cent in March 2007 to more than 14 per cent in March 2012
But in the coming years public sector banks will need capital infusion of Rs2, 400 Billion by the year 2018 to be in line withBasel III norms. This is likely to act as a constraining factor in lendingoperations. But the FDI in the sector was not really impressive.
Cumulative FDI inflows into theinfrastructure sector were of theorder more than USD 25 Billionduring the 12th Plan and averagedUSD 5 Billion per annum.The breakup of FDI inflows revealsthat telecom sector was thehighest recipient of FDI inflows with a share of 40 per cent followed by power 24 per cent, petroleum & natural gas 19 per cent, transport 11 per cent and non-conventional energy 6 per cent.
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