India Infrastructure: Indian Banking and Infra / construction NPAs

Infrastructure projects typically financed by 80-20 debt equity ratio are suffering as government equity is

Image by Desazkundea via Flickr

scarce and private financing on equity markets and bank funding made to suffer for private equity lock ins lasting more than the 5 yr desired and/or beating on the bourses

NPA marking after 6 months, apart from its long tenure and thus unsuitability for bank books, none of which have stopped banks and infra projects from announcing financial completion and consequent delays in land acquisition, escalation of project costs and delays in project execution, even after operationalisation, ground results and financial projections are yet divergent as adoption of pay as you go by retail consumers is slow at best, some challenges that dog india’s epic yet comical $2.5 tln infra financing story.

Of the $1 Tln expected from the 12th yr plan in spending on infrastructure, 50% is expected from private players. Already markets have been punishing operationally efficient players like Reliance Infrastructure, GMR and GVK for the large scale perception of a bad debt industry pampered conveniently by banks. Of the incremental $4 bln lending by banks this year to real estate companies, two thirds is made to unlisted real estate companies for new projects as listed companies battle with public debates on their untenable debt and costs of servicing ECB and financial sell offs by DLF and others to get the balance sheet good for inspection. Whether listed or unlisted, project delays and NPA qualification is the same and more than 10% of this new $4 bln or $1.6 tln till date(2011) are likely to become NPAs soon on real estate projects waiting for better climes in consumer spending on the housing and durables segments

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