“The provisioning requirement may be very excessive. There ought to be differentiation between tasks. Some quantity of provisioning for underneath development tasks is comprehensible due to the danger. However as soon as a venture is accomplished, there is no such thing as a want to carry 2.5 per cent provisioning as a result of the federal government is the counterparty in a lot of the tasks. We will’t have a one-size-fits all strategy to venture financing,” mentioned a prime public sector financial institution official.
- Additionally learn: RBI’s provisioning hike proposal ‘can dampen infra venture lending’
5% Provisioning
The official underscored that the 5 per cent provisioning requirement might be primarily based on historic knowledge, which takes into consideration the extremely skewed NPA (non-performing asset) numbers of the 2014-2017 interval.
“The proposed prescription doesn’t give weightage to the course correction undertaken by the federal government within the final 4-5 years to make sure that infrastructure tasks are fast-tracked. We’ve not seen a lot stress within the infra portfolio after 2018,” he mentioned.
Furthermore, within the final 4-5 years, default in banks’ infrastructure portfolio has been round 1-1.2 per cent. So, 1 per cent provisioning ought to be sufficient as an alternative of 5 per cent. After venture completion, the provisioning ought to be a lot decrease – round 0.4 per cent.
Bankers say the moratorium on repayments past DCCO (Date of Graduation of Industrial Operations) ought to be lifelike. Whereas the draft proposes moratorium interval not exceeding six months, it ought to be realised that tasks take time to ramp up.
Generally, it may take even two years to get the specified money flows. So, the moratorium interval must be re-looked.
“There are prudent tips for normal provisioning for loans and advances. In such a situation, levying a 5 per cent provisioning for tasks underneath development appears to be a bit past cheap credit-risk warning and nearly borders on signalling a belief deficit on credit score appraisal strategy of venture financing banks and establishments,” opined Kiran Chonkar, Accomplice, Company Finance and Funding Banking, BDO India.
Infra main L&T, nevertheless, has a distinct take. “I feel what’s being promoted is accountable investing whereby the suitable venture ought to be funded. This can cut back venture failures,” mentioned R Shankar Raman, Chief Monetary Officer, L&T
(With inputs from Aroosa Ahmed)
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