Increasing hesitation on the part of banks to lend to infrastructure projects has rung alarm bells in the government, as this could delay several critical current and planned projects by several months for want of funds.
“Banks have also been reneging on the sanctioned terms, especially relating to interest rates agreed in the loan documentation. These include even loan documents executed in the current fiscal. Even if a couple of banks block disbursement, the entire disbursement schedule gets seriously disturbed,” a finance ministry official said.
Data collated by the finance ministry have shown that banks are charging above 15 per cent interest rate. This year alone, interest rates for infrastructure projects have gone up by a whopping 3 percentage points.
“At this interest rate, infrastructure projects may not be viable,” the official said.
Banks are now stipulating variable interest rates, even during construction period, exposing projects to rate fluctuation risks and a consequent risk of project financing.
Banks are also stipulating “credit rate spread” re-fixation after two to three years, leaving project developers at the mercy of lender-determined interest rates.
“Several banks are already showing a significant dislike to process projects with tenor above 10 to 12 years,” the finance ministry said.
“While part disbursements from banks have already commenced for several projects, banks are now delaying further disbursements,” he said.
The government is planning a special refinance window for banks and financial institutions to lend to credit-starved infrastructure companies, small and medium enterprises and housing projects.
This would enable banks to borrow funds from India Infrastructure Finance Company Limited (IIFCL), Small and Industries Development Bank of India (SIDBI) and the National Housing Bank (NHB), which would then be lent to the corporations.
Government sources said IIFCL would be able to provide additional refinance of about Rs 30,000 crore.
Similarly, NHB and SIDBI is likely to be able to provide additional refinance of more than Rs 20,000 crore each to housing projects and small and medium enterprises, sources said.
The measures are expected to kickstart critical infrastructure projects worth over Rs 50,000 crore.
The government recently raised overseas borrowing limits, under which infrastructure firms can borrow up to $500 million in a year from overseas markets to spend at home.