Animal spirits returning to private infra investments, says IIFCL MD

Padmanabhan Raja Jaishankar, MD, IIFCL

NEW DELHI : Private infrastructure investors increasingly prefer a model for projects designed for the private entity to bear financial risks—build, operate and transfer (BOT)—in a sign of the sector regaining its animal spirits, according to Padmanabhan Raja Jaishankar, MD of state-run India Infrastructure Finance Company Ltd (IIFCL).

Jaishankar said the preference to BOT rather than the hybrid annuity model in which the government bears revenue risk has been noticed in the last six months to a year. In an interview, Jaishankar also said IIFCL is pitching for a change in RBI rules on classification of restructured standard loans, which will help infrastructure financing. Edited excerpts:

What is the impact of tightening monetary policy on your business?

Interest rate environment is a function of many external factors as also the response of central banks to these factors. We look at it as a cycle which any financial institution goes through. The current… tightening (of monetary policy) definitely poses some challenges for the institutions which are actually developing infrastructure, in terms of cost of credit. That has attendant impacts. But as far as IIFCL is concerned, we are comfortable in terms of liquidity even now and we are not overly bothered about the adverse movements. We are waiting and watching and will move as per market situation as and when we feel that we need to intervene. But at the moment our benchmark rates are very cost effective and our priority is to ensure that this comfort is passed on to infrastructure projects. We are comfortable as far as liquidity situation is concerned within IIFCL.

What is your sense of the pace of infrastructure building?

We are seeing a number of projects seeking disbursements. There is definitely a demand that is showing up. Momentum is now picking up. In three-four months, we will see a more pronounced demand-led growth. We are in almost all sectors and we are seeing the same trend in all the sectors. At the same time, I must say that the reforms in terms of revised concessions and many other support measures in the road and other sectors have helped in bringing back private investments. BOT models are now re-emerging. That itself is an indication that confidence of private investors is coming back, the animal spirits are beginning to show up. So far, the hybrid annuity model (HAM) has been operating. HAM model entails more of government support with entire revenue risk being taken by the government.

Are you saying private sector’s risk appetite is returning in infrastructure sector?

It is re-emerging. We are seeing a number of BOT projects coming up in the last six months to one year. That shows that large developers are willing to take risks. I see that as a very important trend. If things keep happening the way they have been happening in the last two years, if we get more private investments and large developers into the system, it is very good for the infrastructure sector. These kinds of trends were absent in the past few years. That is a very significant development.

How can infrastructure financing be made more efficient?  

I think the regulatory environment should become more conducive. Long term financing can be possible if we relook and review the definition of restructuring of standard projects. That is a major review that needs to be done. If done, it will help. Standard project restructuring should not invite additional provisioning and it should not be rendered as non performing asset. Standard projects must be allowed to restructure in terms of term structure as well as rates. That will help in infrastructure projects achieving commercial viability. We are seeing an environment today of concessions of upto 60 years. Internationally, there are concessions upto 99 years and beyond. Lending environment is the same—six to seven years or ten years. One set of institutions can lend six to ten years, another set of institutions can lend next ten years and so on. That must be allowed. Today, the regulatory environment does not allow that. We have made suggestions and I think a review needs to be done on the regulatory front. That will help long term financing.  

How is your business doing?  

We plan to grow our loan book in excess of 50,000 crore on a standalone basis. Currently it is around 42,000 crore. We would like to corss  50,000 crore and we would also like to look at enhanced disbursements in terms of consolidated performance. Our London subsidiary is also doing quite well. I see the asset size on a consolidated basis crossing Rs. 75,000 crore this year. It is around 69,000 crore.  

Multilateral agencies are predicting more economic shocks next year. Are you prepared for that?  

We are quite comfortable. NPAs are down and are adequately provided for. We have comfortable capital adequacy ratio. Our profitability trend has been unprecedented. We had posted an 80% year on year profit growth last year and hope to continue with the trend. The overall financial provision is quite strong and we would like to continue with that trend. We are not overtly bothered about any adversity arising out of any shocks. Last year, we grew our networth to over 12,000 crores from a position where we were about 9800 crores or so, adding about 2000 crores to our networth, which has significantly enhanced our exposure capacity. We are now able to lend larger quantum. Because of our good financial position, we are able to be highly competitive to finance large nationally significant infrastructure projects. Last couple of years, we have financed a number of such large projects. That has been because of our competitiveness in terms of interest rates as well as term structure. The effort to maintain that will be on. Resource management and risk management will remain in focus. In resource management, we have reduced our cost of funds significantly from 8% to almost 5.9% in the last couple of years, which has added to our strengths to lend at very competitive rates. We will be closing our balance sheet for September quarter in the next two days. We are highly profitable, we have not seen much stress, there have been no NPAs and provisioning has been manageable. 

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Animal spirits returning to private infra investments, says IIFCL MD

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