Banks turn averse to new infra loans as risks rise

Saikat Das
Moneycontrol.com

Amid growing concerns of rising risks in infrastructure loans, lenders are turning averse to fresh infra-lending, which, till now, was one of the key drivers for overall credit off-take. However, now banks are rather looking at the manufacturing sector and mid-size corporates to diversify their loan portfolios.

"We are going slow on infrastructure loans; we are taking cautious measures in sanctioning them," Mohan Tanksale, executive director, Punjab National Bank (the second largest lender) told Moneycontrol.com. "The power sector has some issues. Unless those issues are resolved, we would not like to take any fresh exposure in power infrastructure companies. We will increase our focus in manufacturing sector through term- and working-capital loans," he added.

Infrastructure sector accounts for a significant chunk of banks' loan books. Banks lent Rs 2,69,200 crore to power sector while Rs 2,57,500 crore to other infra companies in FY11, according to data provided by the rating agency - ICRA.

Such concentration, according to analysts, basically carries two-pronged risk factors. Infra companies may default on repayments as projects are getting stalled. In turn, it result in higher non-performing assets of banks. Moreover, infra loans with longer tenure (at least 10 years) could lead to asset liability mismatch.

"There should not be any concentrated risk in our portfolio," AS Bhattacharya, chairman and managing director of Bank of Maharashtra (BoM) told Moneycontrol.com.

"We do not want to extend the loan window to new infra companies. It might come down slightly below the existing exposure of 20%. Instead, we will be focusing rated mid-size companies where we earn 2-2.5% higher rate of interest than large corporates."

Increase in proportion of infrastructure loans (from current 14%) could worsen the asset liability mismatch profile and increase interest rate sensitivity of banks, states an ICRA report.

"Our exposure in infrastructure sector will gradually come down. We have already started getting repayments for loans taken four to five years back. We are giving fresh loans to select companies only in infrastructure space," said SK Verma, GM, Large corporates at Union Bank of India .

For instance, Union Bank prefers to sanction loans to those companies which work on national highway project getting regular payments from National Highway Authority of India (NHAI).

It is difficult to reduce infrastructure exposure immediately as the tenure is relatively longer than other sectors. The only way to do it, is to control the fresh exposure, observe bankers.

So, will banks be able check NPAs?

"Higher exposure in infrastructure may lead higher non-performing assets (NPAs) in FY13. Though banks may be taking cautious approach in sanctioning fresh loans but existing loans could pose a threat to the asset quality especially in power infrastructure, said Suresh Ganapathy, a banking analyst from Maquarie Research (Asia).

Power sector is grappling with issues ranging from cash-strapped state electricity boards to coal shortage.

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