CHALLENGES IN

INFRASTRUCTURE
PROJECTS FINANCING

SALIENT FEATURES OF DEEPAK PAREKH

COMMITTEE REPORT
Nature of GDS in India
Physical vs Financial
Tenor
Intermediation
Shortage of Risk Capital
Concentration of Risk
maximum 15% to a single borrower
maximum 40% to a group
5% and 10% relaxation in infrastructure
Underdeveloped Debt Capital Market
Multiple regulations, Stamp duty, TDS, Pvt placement,
Regulatory asymmetry for banks

SIZE CHALLENGE

The most prominent difference in infrastructure finance and

other project finance is size, leading to huge demand-supply
gap.
POWER
Growth of 3.7% during 2010-11 led to 8.5% energy
shortage
Peak demand of power registered a growth of 2.6% during
2010-11, resulting in 12,031MW shortage.
So additional capacity of 1,00,000 MW has been
envisaged during the 12th Five Year Plan.

LONG GESTATION & TENOR PROBLEM

Majority of infrastructure projects have

gestation period of 10-15 years
The project tenor may go to several decades

BANKING ISSUES

80% of the infrastructure projects have been

financed by banks
Banks (56%), NBFCs (24%), Insurance Cos
(9%), ECB and others (11%) in the past three
years.
Infrastructure funding by banks as a %age of
gross bank credit has gone up from 1.7% in 2000
to 11.7% in 2010.
Typically bank deposit tenure is 3 years or less

BANKING ISSUES

ECBs are recently allowed by RBI

Life Insurers have to make 50% investment in
G-sec
75% of the remaining 50% has to be in AAA
rated papers
Typically bank deposit tenure is 3 years or less
EPF can invest only upto 10% in private sector
bonds / securities which has minimum
investment grade rating

POOR RISK MITIGATION MECHANISM

Long-term foreign exchange derivatives not

available
Magnified Political risk
Dabhol Power Project
Yamuna Expressway