Set up new bank to provide long-term low cost funds to infra sector: APP

In a letter to Finance Minister Nirmala Sitharaman earlier this month, the Association highlighted many issues including low transmission of benefits of reduced lending rates by RBI. Last month, Sitharaman did a series of press conferences to explain the benefits of the Rs 20 lakh crore package for various segments including infrastructure sector. "In spite of all these efforts (package), a larger section of the economy including infrastructure sector has been struggling to keep up against the impact of extended lockdown," APP said in the letter.

It demanded establishment of a development bank/ specialized financial institutions for infrastructure sector. "With IDBI/ ICICI/ IDFC converting to commercial banks, there is a need for separate and specialized development financing institutions and supporting framework for long-term, low cost funding needs of infra sector," it said.

This will also enable achieving the investment target of Rs 102 lakh crore over next 5 years as per National Infrastructure Plan, it added.  Between December 2018 to May 2020, RBI has reduced repo rate by 250 basis points (bps) but this has not been transmitted to borrowers, it claimed. Banks have not been in line with RBI rate cuts in reducing their 1 year MCLR (lending rate). SBI has reduced its MCLR by 130 bps during the period despite support at policy level, it said.

There is a need to have seamless transmission of repo rate reduction to reduction of rate of interest, it demanded.  APP also noted that the mood of the banking sector towards infrastructure projects needs to change. RBI can give flexibility to banks in diluting some of the stringent provisioning norms, to enable banks to work out new loan repayment schedules for affected businesses and mandatorily not classify such running account as NPA ( bad loans), it added.    

One time debt restructuring option without triggering NPA is very much needed so that lenders can show forbearance towards borrowers facing cash squeeze, it said citing China which is ordering banks to go easy on stressed borrowers.  RBI can also examine and allow 6-monthly servicing of interest for infra projects in line with global banking norms to meet cash flow mismatch for these projects, it proposed.  ÀPP also sought working capital support to meet operational requirement of infrastructure sectors. Reduction in overall operation of the plants has led to squeeze in cash flow.  

Policy support in the form of 10 per cent  additional working capital has been formulated, but banks have hardly implemented it  and may need additional encouragement to quickly implement it for projects under stress, it said.  Further, for cash strapped businesses, it may be difficult to meet repayment of accumulated interest on working capital facilities over deferment period by March 2021 as allowed by RBI and may be allowed to be paid over longer duration, it demanded.  

Infrastructure projects especially power projects have very high receivables from government agencies besides needing to pay in advance for raw material and its transport.  Banks need to favourably work with borrowers to factor all these requirements while arriving at required working capital, it said.  RBI has taken several steps to provide financial support but banks are not lowering rate of interest or the agreed spread over MCLR due to lower rating of stressed projects.

Market regulator Sebi’s May 21 circular guides Credit Rating Agencies (CRAs) to frame their internal policy for upgrading of default rating to investment grade and also allows deviation from 90 days waiting period to upgrade the rating from default to non-investment grade.  Need is to have CRA policies in tune with the quick upgradation of rating for running accounts, it said.  

APP said any rating exercise will not be able to capture exact impact of outbreak and  hence rating requirement for running accounts may be suspended until things normalise for internal risk calculation for fixing spread in bank rate of interest. Credit Rating system needs to be evolved by CRAs/ lenders for rating of infrastruture projects which have long-term nature and stable cash flows post COD  (commercial date of operation), it added.