 "M Rajeshwar Rao, Deputy governor, RBI")
He further noted that the underdeveloped financial system and the limited market for infrastructure debt have made the sector heavily dependent on banks. file image
The National Bank for Financing Infrastructure and Development (NaBFID) should focus on post disbursement credit monitoring, a key design that has been a barrier so far, for optimal outcomes in infrastructure financing, said M Rajeshwar Rao, deputy governor of the Reserve Bank of India. (RBI), on Thursday.
NaBFID is a development finance institution that was set up in 2021 to focus on infrastructure funding.
“The absence of a strong post-disbursal monitoring of credit utilization was perhaps a key design failure in the erstwhile development finance institutions (DFIs) which resulted in sub-optimal outcomes. There is a need to learn from the past episodes and set up dedicated units tasked with the ongoing monitoring and evaluation of funded projects through comprehensive and frequent surveys and assessments, which will not only enable dynamic appraisals for subsequent disbursements but also ensure that the finance and Tangible progress in projects are in sync with each other,” Rao said at NaBFID’s Infrastructure Conclave.
Additionally, he said effective mechanisms must be established for the liquidation and resolution of bad assets, along with developing adequate internal expertise to handle these processes.
Speaking to reporters on the sideline of the event, the deputy governor said that the RBI has received feedback on the proposed norms on project financing, and the updated regulation would be out soon.
Samuel Joseph, deputy managing director at NaBFID, said that the updated norms might lead to a 0.3 per cent-0.4 per cent hike in loan pricing.
Rao further said that NaBFID should also aim to become a self-sustaining business that does not depend on continuous government support. He added that beyond its financial objectives, the organization can play a pivotal role in advancing key developmental goals such as bond market development and providing technical assistance for infrastructure projects.
“It can aim to become a market maker, ensuring adequate liquidity for investors. Furthermore, to encourage long-term fund custodians like pension and insurance funds to invest in the infrastructure sector, aligning with their long-dated liabilities, NaBFID could offer innovative solutions, such as partial credit enhancements through rating upgrades or first-loss default guarantees, Rao said.
The deputy governor also said that NaBFID could also play a critical role in facilitating loan syndication for large-scale loans and in supporting the SLMA in the development of credit markets. As it develops its internal credit rating model, NaBFID could eventually offer products like credit default swaps (CDS), which would significantly boost confidence in the bond market.
He highlighted that an underdeveloped financial system and limited market for infrastructure debt have made the sector reliant on banks and non-banking financial companies for financing. When the non-performing assets of banks increased over the past decade and a major NBFC defaulted on loans, “appetite of such financial intermediaries” for infrastructure investments reduced.
Rao said that high costs and long gestation periods complicate infrastructure financing and lead to asset-liability mismatches. Delays in approvals, clearances, land acquisition challenges and breaches of agreements exacerbate the risks and often result in cost overruns.
He said that the interdependence of infrastructure projects adds another layer of complexity.
The success of a project often hinges on the availability of complementary infrastructure. This interconnectedness means that delays or issues in one project can affect others, making the financing process more intricate. Effective infrastructure development requires a holistic approach where projects are viewed as part of an interconnected network rather than in isolation. Successful outcomes depend on synchronized financial planning, meticulous execution, and leveraging synergies across projects, Rao said.
First Published: Sep 12, 2024 | 11:30 AM IST
Thank you for taking the time to read this article! I hope you found the information insightful and helpful. If you enjoyed this type of content, please consider subscribing to our newsletter or joining our community. We’d love to have you! Feel free to share this article with your friends and family, who might also find it interesting.
Kanishk Singh has always had a keen interest in fast-paced cars. For the past three years, he has been writing about automobiles, but his fascination with cars dates back even further. He thoroughly enjoys learning about their features and expressing his thoughts through his writing. Kanishk also has a profound interest in the stock market, shares, and business strategies. He possesses a wealth of knowledge on these subjects and consistently writes articles on them. Currently, he is working as a writer for Lattestnews24, specifically focusing on the Automobile, Finance, and Business categories. His well-crafted words are highly appreciated by the readers, as they find them both informative and creative.