The long lifecycle of infrastructure projects necessitates the involvement of different financial entities specialising in various phases of the project, aiding the process by refinancing, transferring, and taking over projects between these entities, said RBI Deputy Governor M Rajeshwar Rao.
“A comparatively underdeveloped financial system and a market for raising debt for the infrastructure sector, have made the sector dependent on banks and Non-Banking Financial Companies (NBFCs) for its financing needs,” Rao said in his keynote address at Infrastructure Conclave organised by National Bank for Financing Infrastructure and Development (NaBFID).
However, the spike in the non-performing assets (NPAs) in the banks in the last decade and the debt default by a systemically important NBFC engaged in infrastructure finance, diminished the appetite of these financial intermediaries for infrastructure financing.
Rao emphasised that the recent decline in NPAs for banks, coupled with the increased resilience of NBFCs, signifies a positive shift for the infrastructure sector.
“Historically, public expenditure has been the cornerstone of infrastructure development in India. However, considering the limits up to which we can depend on public expenditure, the involvement of the private sector becomes crucial in funding the expansion of infrastructure, fostering industrial competitiveness, broadening access to a diverse talent base, and optimising the use of resources,” the Deputy Governor said.
He emphasised that in this context, a specialised institution like the NaBFID, with a specific mandate to support long-term infrastructure financing in India, can play a transformative role in bridging the funding gap to catalyse participation of the private sector.
Post-disbursal monitoring
Rao observed that the absence of strong post-disbursal monitoring of credit utilisation was perhaps a key design failure in the erstwhile DFIs (Development Finance Institutions), which resulted in sub-optimal outcomes.
“There is a need to learn from the past episodes and set up dedicated units tasked with the ongoing monitoring and evaluation of funded projects through comprehensive and frequent surveys and assessments, which will not only enable dynamic appraisals for subsequent disbursements but also ensure that the finance and tangible progress in projects are in sync with each other,” he said.
Furthermore, necessary mechanisms must be put in place for dealing with the liquidation & resolution of the bad assets and sufficient expertise must be built internally towards this end.
The Deputy Governor emphasised that as the Indian economy continues to grow, it is imperative that infrastructure is seen as a factor of production like labour and capital to attract necessary focus considering its multiplier effects in capacity building, developmental outcomes, and societal well-being.
