8 January New Delhi. A joint paper brought out on ‘Infrastructure Financing’ by the PHDCCI & CRISIL highlights that policy and regulatory facilitation would have to be made effective and conclusive to liberalize investment norms for pension funds and insurance companies so that their corpus is also utilized to part finance infrastructure projects by the present NDA Government.
According to an estimation by PHD Chamber of Commerce and Industry and CRISIL Ratings the government would have to undertake a massive provisioning of Rs.26 trillion for the next five years, beginning 2015 to finance all its infrastructure projects to give a required fillip for its Make in India project as well put India on a growth trajectory of between 7-8 per cent.
Tthe President, PHD Chamber Mr. Alok B. Shriram said “of the estimated Rs.26 trillion amount for infrastructure projects, close to 80 per cent be needed for the power, roads and urban infrastructure. In power, generation will continue to account for the largest share of the investments whereas in roads, investments be driven towards building national highways and state roads. In urban infrastructure, municipal bodies are likely to need significant investments for constructing urban roads, expanding its transport and revamping water supply and sewerage infrastructure”.
Both, the PHD Chamber and CRISIL further hold that 70 per cent of the projected investments for infrastructure financing would have to be funded through debt, with banks remaining the largest source of finance. External Commercial Borrowings (ECBs) is recommended the another source of funds to an extent of 14 per cent of the projected requirement which works out to be Rs.2.5 lakh crores. The balance of Rs.7 lakh crores which is about 40 per cent of the projected requirement is expected to come through bonds issuance provided the bond market is further deepened with critical measures by RBI and SEBI.
The paper admits that it would be difficult for banks alone to finance infrastructure sector since rapid growth in lending to infrastructure sector pose the risk of assets liability mismatch given that the infrastructure project loans have long tenures of 10 to 15 years while bank deposits, the main source of funds, typically have a maturity of less than three years. Moreover, several banks are also nearing the group exposure limits set by RBI for lending to large infrastructure players.
Therefore, the two institutions recommend that insurance companies and pension funds, with their large corpuses should be geared up so that they emerge a large players in the corporate bond market with further easing the investment norms for them so that their corpuses are suitably utilized for infrastructure financing.
News source :- PHD Chamber of Commerce and Industry
