Bank loans not easy for infrastructure developers
It is seen that companies involved in road construction bid in an aggressive manner to win big contracts cause great financial loss to banks. Thus banks have decided to be very easy while providing loans.
Due to the delay in financial closure, around 15 National Highways Authority of India (NHAI) are put on hold. This has created a point of worry to many leveraged developers who are looking forward to finance the projects and get loan from bank.
Chairman and managing director of Indian Overseas Bank, M Narendra, pointed out that many infrastructure companies in India are not financially stable. In 2011, road project contracts of two developers DSC and Gannon-Dunkerley Co were closed as they were unable to raise fund of Rs 2500 crore from bank.
It is assumed by analysts that failure in bank’s litmus test can also result in termination of many projects. The target of NHAI to award road projects is 9000 km but till now only 2000 km road projects are awarded. The target of government to construct road per day is 20 kms. But financial problems faced by developers will be a barrier in this target.
According to bankers each project will face an assessment test of viability along with examination of traffic data to determine the bid amount. It will now become difficult to get loan for companies that do not have strong balance sheets. Banks are now demanding to increase their debt-to equity ratio from 65:35 to 80:20 or 75:25 ratio. Banks will lend loan to only those developers who are in state to redeem the debt.
In October 2012, Banks’ total loan to infrastructure sector was Rs 6.6 lakh crore. According to data available with RBI, loan growth to infrastructure sector has declined to 14.9% in October as against 22.4% a year ago. Many banks have reached or about to reach the exposure limit. The deadline to redeem the debt amount of loan is 330 days after the project awarded but NHAI has given extension to four developers.
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