With general elections just round the corner, highway developers are leaving no stone unturned to extract more concessions from the present UPA government at the Centre.
After the decision of the Cabinet Committee on Economic Affairs in October last year to allow rescheduling of premium quoted by concessionaires in respect of highway projects, the National Highways Builders Federation last month placed a proposal before the RBI Governor for change in the lending norms for infrastructure companies.
The proposal by the representative body of highway developers said that considering infrastructure projects had a long gestation period with revenues gradually increasing alongside increase in usage and usage charges, there was need to modify the lending norms for the sector with regard to servicing of the interest charged by banks.
“The finance model of the infrastructure companies is a typical case of gradually ballooning revenues over a period. Though the projects are financially viable over the concession period, the cash flows in the initial periods are low,” it said.
Citing the example of toll road projects, the proposal said that it took anywhere between two to three years for the economic development to seep in and the project revenues increased gradually after a ramp-up period.
Under the current lending norms, the concessionaire needs to service the interest debited to the account by the bank within the permitted time frame failing which the account is classified as Non Performing Asset. Since initial toll revenues are low, additional funds have to be infused by the promoter to meet the interest and repayment obligations.
Though banks at present stipulate lower principal payment in the initial years, gradually increasing the amount over the tail end, the interest part places a heavy burden on the concessionaire.
In the absence of a developed bond market and alternative sources of funding, the infrastructure sector is totally dependent on banks.
The NHBF proposal to RBI suggested creating a separate category of exemption in its policy on base rate to enable banks to lend at variable rate of interest, starting with rates lower than the base rate and then gradually increasing it duly keeping the overall yield on the loan intact and in sync with the growth in project cash flow. Banks at present are not permitted to lend at rates lower than the base rate.
Alternatively, the proposal said the borrower could be allowed to defer servicing a significant portion of the interest for the initial period of three to four years to a future period without triggering the NPA provisions as per prudential norms.
In an office memorandum dated February 10th, 2014, the Ministry of Road Transport and Highways said it supported the NHBF’s proposal seeking changes in the lending norms for infrastructure companies.