Regulatory lapses & policy uncertainty are pushing infra financing into crisis: Experts

At CPR Dialogues 2020, former SEBI chief U.K Sinha said there is a lack of accountability when it came to infrastructure financing institutions.

An under-construction building (Representational image) | Commons

New Delhi: Regulatory lapses, lack of accountability, policy uncertainty and the absence of a vibrant corporate bond market are some factors that have led to an infrastructure financing crisis in India, a panel at Centre for Policy Research (CPR) Dialogues 2020 said Tuesday.

During a session titled ‘Are India’s financial institutions in crisis: Understanding India’s economic slowdown’, former State Bank of India & IDBI Bank managing director B. Sriram said asset liability mismatches, governance issues and forecasting viability of projects are some of the issues the sector faces.

Sriram added that banks, having burnt their fingers in this space, are now opting for retail banking. “Rather than learning from their mistakes and continuing to lend to this segment, banks are withdrawing from corporate financing & infrastructure financing,” he said.

Regulator perspective

U.K. Sinha, former chairperson of the Securities Exchange Board of India (SEBI), spoke about how Indian governments have typically always reacted late.

Specific to infrastructure financing, Sinha spoke about how it took over two successive Union Budgets to iron out the starting problems faced by real estate investment trusts and infrastructure investment trusts with regards to capital gains tax and minimum alternate tax. He talked about how these trusts would have helped promoters exit and move onto new projects by easing the funding constraints.

It took SEBI time to convince the department of economic affairs and department of revenue on the need to bring in the changes, he said.

The former SEBI chief also pointed out that there was a lack of accountability when it came to infrastructure financing institutions. “We have created one new infrastructure financing institution every decade. Instead of holding these institutions accountable, we just create new institutions,” he said.

Naina Lal Kidwai, former chairperson, HSBC India, and senior advisor, Advent Private Equity, pointed out that private sector banks did not fill the gap in infrastructure financing.

Kidwai also stressed the need for a more vibrant corporate bond market and urged the government to address sectoral problems to ensure that these accounts don’t turn into non-performing assets on the banks’ books.

ThePrint.in is the digital partner for CPR Dialogues. Read this series of curtain-raiser articles ahead of the conference.