The Hindu Business Line : Govt asks banks to rebalance credit portfolio

Worried over paucity of credit availability to the physical infrastructure sector, the Union Ministry of Finance has begun persuading banks to rebalance their lending portfolios.

Rebalancing of credit portfolios entails shifting from some sectors to infrastructure lending, where term credit was most required. In fact, the Finance Ministry is extremely unhappy with the current phase of high non-food credit, which was largely fuelled by retail credit, including housing and real estate.

Mr Vinod Rai, Secretary, Financial Sector, said, "We are very concerned over the unidirectional movement of bank credit. Physical infrastructure needs more bank finance."

The concern stems from the high retail credit portfolios. Retail credit portfolios of banks are currently estimated at close to 30 per cent of non-food credit. Retail loan portfolios have grown by close to 100 per cent on a year-on- year basis for some of the banks.

The bias in favour of retail credit is also evident from the pricing. Housing finance is currently priced between 9.5 and 10.5 per cent depending on the tenure. The only collateral being the underlying physical asset. However, in the case of infrastructure the pricing is far higher. This is despite the fact, that along with the physical infrastructure, even the project cash flows are assigned, which in turn are backed by funded sub-sovereign guarantees.

Mega power projects

In the case of the 1,015-MW inter-State mega power project in Mangalore, lead arranged by the Power Finance Corporation, the pricing for debt finance was 10 per cent. This was despite the fact that the State Governments of both Karnataka and Punjab had committed off-take of power, supported by an escrow account, which in turn was backed by guarantees of the respective State Governments.

Debt-equity ratio

The debt funding requirements for the projects are estimated to be in excess of Rs 50,000 crore for all the projects assuming a debt-equity ratio of 70:30. Each of these projects, with a capacity of 4,000 MW, is expected to cost about Rs 15,000 crore.

The proposed ultra mega projects are Coastal Gujarat Power Ltd, Coastal Maharastra Power Ltd, Coastal Andhra Power Ltd, Coastal Karnataka Power Ltd and Sassan Power Ltd, which was a pithead based.

Power purchase agreements for both ultra mega Gujarat and ultra mega Sassan have already been signed with 9 States.

But a higher debt-equity ratio of 80:20 is also possible, especially where the PPAs are fully bankable and are on a back-to-back basis, as in the case of Mangalore project. The higher ratio would raise the debt requirement for the ultra mega projects to about Rs 60,000 crore.

The back-to-back basis implies that the bulk power buyers and distribution companies in the States assign revenues for purchases supported by State Government guarantees. Pricing of the debt fund is required to be kept low in view of tariff implications.

The projected tariff per unit from each of these projects, which would be either pithead or based on imported coal, is targeted at under Rs 2 a unit, to ensure their long-term viability.

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