Highway builders seek 2% reduction in infra loan provision

04 Jun 2024 CW Team

They noted that currently, lenders must set aside 0.4% as provision against loans given to highway builders. The banking regulator had proposed a significant increase in this provision in its recent draft guidelines on infrastructure financing.

The contractors also proposed that the government should consider 90% of land availability for financial closure, rather than the proposed 50%, and extend the moratorium for repayment to a year from the RBI's suggested six months.

The National Highways Builders Federation (NHBF) stated in its submission to the National Highways Authority of India, the finance ministry, and the Reserve Bank of India, "Increasing the provisioning from 0.4% to 5% will be the biggest impediment to project viability. It will raise interest costs, thereby increasing the project cost for both investors and the government."

According to the NHBF, this increased provisioning would slow down infrastructure development, hamper economic growth, and affect monetization benefits.

The federation also suggested that a 2% provisioning rate could be implemented faster by 2025-26, compared to the government's plan to implement 5% by 2026-27 in a phased manner. "Phasing may not benefit the infrastructure industry as lenders may consider the highest provisioning rate in calculating lending rates," they explained.

Regarding land availability for financial closure of infrastructure projects, the NHBF recommended that not less than 90% of land availability should be considered sufficient. "Land availability is the primary risk factor causing delays or sometimes project termination," they emphasized.

Advocating for an extension of the moratorium period to a year, the NHBF argued that this period is often necessary for lenders to support initial cash flow requirements for stabilising operations.

The highway construction contractors suggested that the provision required by lenders for financing their projects should be fixed at 2% instead of the Reserve Bank of India's proposal of 5%. They argued that the RBI's proposal would harm project viability. They noted that currently, lenders must set aside 0.4% as provision against loans given to highway builders. The banking regulator had proposed a significant increase in this provision in its recent draft guidelines on infrastructure financing. The contractors also proposed that the government should consider 90% of land availability for financial closure, rather than the proposed 50%, and extend the moratorium for repayment to a year from the RBI's suggested six months. The National Highways Builders Federation (NHBF) stated in its submission to the National Highways Authority of India, the finance ministry, and the Reserve Bank of India, Increasing the provisioning from 0.4% to 5% will be the biggest impediment to project viability. It will raise interest costs, thereby increasing the project cost for both investors and the government. According to the NHBF, this increased provisioning would slow down infrastructure development, hamper economic growth, and affect monetization benefits. The federation also suggested that a 2% provisioning rate could be implemented faster by 2025-26, compared to the government's plan to implement 5% by 2026-27 in a phased manner. Phasing may not benefit the infrastructure industry as lenders may consider the highest provisioning rate in calculating lending rates, they explained. Regarding land availability for financial closure of infrastructure projects, the NHBF recommended that not less than 90% of land availability should be considered sufficient. Land availability is the primary risk factor causing delays or sometimes project termination, they emphasized. Advocating for an extension of the moratorium period to a year, the NHBF argued that this period is often necessary for lenders to support initial cash flow requirements for stabilising operations.

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