Banks seek more sops for core financing

Bankers said that the issue of infrastructure financing came up for discussion during Finance Minister Pranab Mukherjee's meeting with public sector bank chiefs last week, where the lenders had sought tax breaks for accessing cheaper funds to finance infrastructure projects.

The suggestions included permission to issue tax-free bonds, access to refinance and tax exemptions on loans for infrastructure projects under the Income Tax Act. The government has already allowed India Infrastructure Finance Co to issue tax-free bonds and banks have also sought similar facility.

According to sources, the central bank was not keen on relaxing the group exposure ceiling despite government prodding. A higher ceiling could create concentration risk to certain industrial groups, it was felt.

According to the master circular on exposure norms issued by RBI in July last, a scheduled commercial bank's exposure to a single company is capped at 15 per cent of the capital funds, with an additional exposure of 5 per cent allowed for financing infrastructure projects. Similarly, the exposure ceiling to a group of companies is capped at 40 per cent, with an additional 10 per cent lending allowed for infrastructure projects.

With many infrastructure project developers, especially in the power sector, raising the issue, the finance ministry had written to RBI seeking relaxation.

But bankers present at last week's meeting said that the central bank has indicated that it would not relax the ceiling. "Exposure beyond 50 per cent can create problems, especially during uncertain times," said a bank chief. A senior executive of an infrastructure-focused finance company also said that the ceiling should not be raised.

At the meeting, sources said that the banks asked the apex bank to ease the provisioning norms for those infrastructure projects which were unable to start repayment on schedule due to project delays. "There are a lot of projects where implementation is delayed by a few months, but banks have to make provisions. It is not a case of default, but the provisions have to be made," said a banker.

According to RBI guidelines, in case of infrastructure projects financed by banks and financial institutions after May 28, 2002, the completion date has to be clearly spelt out at the time of financial closure. From April 1 last year, if the date of commencement of commercial production is beyond two years as originally envisaged, the account should be treated as a sub-standard asset, which requires provisioning.

In November 2008, a special dispensation was provided by RBI for seven infrastructure projects which, post-restructuring continued to be treated as standard assets.

The projects included Nandi Economic Corridor, gas-based power projects of GVK Industries, Gautami Power, Konaseema Gas Power, Vemagiri Power, a development project of Tirupur area and another  being implemented by Delhi Gurgaon Super Connectivity.

In addition, loans restructured under the special scheme announced last year can also be treated as standard assets despite restructuring.