—
Sidharth Rath, President - Infrastructure Business and
Relation Management Group, Axis Bank
Axis Bank was the
first of the new private
banks to have begun
operations in 1994, after
the Government of India
allowed such banks to be
established. The bank has
strengths in both retail
and corporate banking,
and is a dominant player
in the infrastructure
space.
Sidharth Rath
speaks his mind on the
role of banks in
infrastructure financing
this interview with
Prashant C. Trikannad.How do you see the role of
banks in India's infrastructure
financing?
For many years India's lack of
infrastructure has been identified
as one of the major constraints
on sustaining a high
growth rate. In 2007, the government
set a target of increasing
total investment in infrastructure
from around 5 per cent
of GDP to 8.4 per cent by 2012.
The 11th Five-Year Plan estimates
43 per cent of total debt
requirement (Rs. 4,20,000 crore) to
be financed by banks. Although
bank financing to infrastructure
is constrained by asset-liability
mismatch, interest rate risk,
exposure norms etc., banks lending
to infrastructure has grown
at a CAGR of 43 per cent from Rs.7,243 crore in 2000 to Rs.2,69,972
crore in 2009. The share of bank
finance to infrastructure in gross
bank credit has increased from
1.8 per cent to10.2 per cent in the
last 10 years. Therefore, the
banks are expected to continue
to play a very important role in
financing infrastructure projects
in future also.
Interest rates are expected to go
up in future. Which way do you
think the interest rates will
swing and how will it affect
project financing?
In the shorter term interest rates
will move in line with the monetary
policy. However, in the long
term, interest rates are likely to
stabilise in line with mature
markets. Since project financing
is a long-term funding, it should
not be affected by short-term
movements of interest rate.
How do banks take care of interest
rate movements in long gestation
infrastructure projects?
Normally, the banks fund the
projects with floating interest
rate linked to the banks base rate
and with an option to reset the
spread on regular intervals.
Therefore, any adverse movement
of interest rate is to a certain
extent mitigated.
The Indian government mooted
'takeout finance' two years
ago but the concept is yet to
take off in a big way. Why do
you think it is so and what do
you suggest?
Takeout finance helps banks to
manage their asset-liability
mismatch. Earlier IDFC had
come out with a takeout
finance scheme and now IIFCL
has formulated a similar
scheme. However, the schemes
have faced issues in terms of
quality of asset at the time of
takeout, provisions in the
books of the acquirer etc. The
concept is likely to mature over
a period of time.
Out of the total lending by Axis
Bank, how much, in percentage
terms, does the infrastructure
sector currently account for?
Do you see this share rising in
coming years?
Axis Bank is a dominant player
in the infrastructure space and is
looking at infrastructure financing
in a big way. While in terms
of percentage of total lending
the exposure to infrastructure
might not increase much, the
absolute amount would go up in
the coming years.
What is your bank's current NPA
level in the infrastructure sector
compared to the previous year?
At present, there are no NPAs in
the infrastructure portfolio.