Infrastructure projects have come to a standstill and the impasse is likely to continue for next months, amid the ongoing COVID-19 pandemic and the migrant workers going back home, according to a leading shadow banker, which provides equipment finance.
The COVID-19 pandemic and the uncertainties given the continued lockdowns in various parts of the country as cases continue to rise, has hurt corporate earnings and investments. SREI Infrastructure Finance chairman Hemant Kanoria called on the government to create an enabling environment to encourage private investments in the infrastructure sector, and also support non-banking finance companies that provide infrastructure finance.
“There is no doubt that India needs quality infrastructure and the government is trying its best to drive significant investments in creating those infrastructure. However, in the current situation the private investors are in a wait and watch mode,” Kanoria told THE WEEK.
“In India, investors often get entangled in a maze of clearances and approvals for years. The laws, guidelines and policies, in my opinion, should be made more investor friendly to encourage private participation, especially in the current environment when risk aversion has enhanced significantly.”
SREI had already begun reducing its infrastructure project financing portfolio, even before the pandemic, due to increased risks in the sector and instead, will focus on equipment finance, which it hopes will pick up post COVID. “We were witnessing a silent recovery in demand for equipment before the outbreak of COVID-19. We are confident that when the situation becomes normal the demand for equipment will pick up with the awarding of new EPC contracts,” said Kanoria.
Also, SREI will continue to leverage co-lending partnerships with banks to “de-risk” its balance sheet. “The co-lending model attempts to leverage the reach and distribution capabilities of NBFCs and low-cost funds of the banking industry in order to service the priority sector. We are confident that this model will de-risk our balance sheet, limiting our exposure to 20 per cent of the loan amount, while growing our fee income,” Kanoria noted.
According to him, the various measures announced by the government as well as the Reserve Bank of India (RBI) to lift the economy will have medium to long-term benefits and will alleviate the liquidity issues to a certain extent. But, he also said the RBI should consider allowing one-time restructuring of loans based on the cash flow, without which there could be large non-performing loans (NPLs).
“Furthermore, the loan accounts should be classified as standard so that no provisioning is needed for the same. This will help stem the tide of NPLs and prevent businesses from tipping over into default,” Kanoria pointed out.
He added that the “unprecedented” nature of the current crisis warranted certain “bold and practical steps” and said it would be “practical” for lenders and borrowers to work together to find out solutions and not be guided by certain mathematical competitions on provisioning, which would result in a huge spike of NPLs.