Road infra cos face problems as banks are wary of lending
21 Feb 2013
2 Min Read
Editorial Team
Hyderabad-based IVRCL won a contract from the National Highways Authority of India (NHAI) on March 31 last year, to develop a 121-km stretch of road between Rajahmundry and Gundugolanu in Andhra Pradesh. Almost a year later, the company has still not managed to arrange bank loans for the Rs 1,617 crore project.
The delay is because of a dispute with the NHAI over an irrigation canal which has to be shifted. The question is who bears the cost of shifting it, says S Ramachandran, Director for Business Development at IVRCL. He adds that IVRCL recently got bank loans for another project with great difficulty. IVRCL is not the only company finding it difficult to arrange bank loans for road projects.
More than half of the 49 projects awarded by the NHAI in 2011/12 have yet to tie up debt. Roads are the second-biggest infrastructure segment in India after power. The government has projected an investment of $1 trillion (a trillion equals 1,00,000 crore), in the infrastructure sector between 2012 and 2017.
Bank loans are critical to meeting this target as debt accounts for 75 to 80 per cent of the total cost of infrastructure projects while equity funding constitutes the rest. However, contractual disputes, delays in environment approvals, and problems in land acquisition have made banks cautious in lending to road projects.
Gross bank credit to the roads sector was Rs 1.26 trillion at the end of December 2012, according to data from the Reserve Bank of India (RBI). This was up 16 per cent from a year earlier but down sharply from the 28.3 per cent growth recorded in 2011. This has left even the central bank worried.
Investment in the road sector has collapsed in 2012/13, with scant interest in new projects, large delays and poor execution in existing projects, the RBI said on January 29 in its macroeconomic review for the October-to-December quarter.
Hyderabad-based IVRCL won a contract from the National Highways Authority of India (NHAI) on March 31 last year, to develop a 121-km stretch of road between Rajahmundry and Gundugolanu in Andhra Pradesh. Almost a year later, the company has still not managed to arrange bank loans for the Rs 1,617 crore project.
The delay is because of a dispute with the NHAI over an irrigation canal which has to be shifted. The question is who bears the cost of shifting it, says S Ramachandran, Director for Business Development at IVRCL. He adds that IVRCL recently got bank loans for another project with great difficulty. IVRCL is not the only company finding it difficult to arrange bank loans for road projects.
More than half of the 49 projects awarded by the NHAI in 2011/12 have yet to tie up debt. Roads are the second-biggest infrastructure segment in India after power. The government has projected an investment of $1 trillion (a trillion equals 1,00,000 crore), in the infrastructure sector between 2012 and 2017.
Bank loans are critical to meeting this target as debt accounts for 75 to 80 per cent of the total cost of infrastructure projects while equity funding constitutes the rest. However, contractual disputes, delays in environment approvals, and problems in land acquisition have made banks cautious in lending to road projects.
Gross bank credit to the roads sector was Rs 1.26 trillion at the end of December 2012, according to data from the Reserve Bank of India (RBI). This was up 16 per cent from a year earlier but down sharply from the 28.3 per cent growth recorded in 2011. This has left even the central bank worried.
Investment in the road sector has collapsed in 2012/13, with scant interest in new projects, large delays and poor execution in existing projects, the RBI said on January 29 in its macroeconomic review for the October-to-December quarter.
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