Highway construction contractors have suggested that the provision that lenders must make against financing their projects be fixed at 2% instead of the Reserve Bank of India‘s proposal of 5%, which they said would hurt project viability.
Currently, lenders need to set aside 0.4% as provision against loans provided to highway builders. The banking regulator made the proposal to sharply increase this in its recent draft guidelines on infrastructure financing.
The contractors have also proposed that the government consider 90% of land availability for financial closure as against the proposed 50%, and increase the moratorium for repayment to a year from the RBI suggested six months.
“By increasing the provisioning from 0.4% to 5%, project viability will be the biggest impediment as interest cost will increase which is turn will increase the cost of the project both for the investor as well as the government,” the National Highways Builders Federation (NHBF) said in its submission to the National Highways Authority of India, the finance ministry and the Reserve Bank of India.
According to the NHBF, this increased provisioning will slow down the pace of infrastructure development and hurt economic growth, besides impacting monetisation benefits.
The federation also said 2% provisioning could be implemented faster by 2025-26, as against 2026-27 if the government sticks with RBI’s proposal to implement 5% in a phased manner.
“The phasing may not help the infrastructure industry as the lenders may factor in the highest provisioning rate in calculation of lending rates,” it said.
Commenting on the extent of land availability for financial closure of infrastructure projects, the NHBF said land availability of not less than 90% should be considered sufficient. “Land availability is the single largest risk factor which creates the delays or sometimes even leads to termination of projects,” it said.
Calling for an increase in the moratorium period to a year, the NHBF argued that moratorium period is often availed of from lenders to sustain initial requirements of cash flow for stabilising operations.
“Restriction on this will create pressure on the cash flow of the company and may result in stress on the project, particularly for build-operate-transfer projects,” it said.
