The past year has been abuzz with the launch of a host of initiatives and the introduction of key policy amendments in the infrastructure financing sector. Addressing the issue of the rising incidence of stressed assets and bad loans in the banking system has been a key focus area. New funding sources such as the National Investment and Infrastructure Fund (NIIF) and infrastructure investment trusts (InvITs) are expected to provide a fillip to infrastructure financing.
The key developments in the sector during the past year are mentioned below.
- In June 2016, the Reserve Bank of India (RBI) introduced the Sustainable Structuring of Stressed Assets scheme as an optional framework for the resolution of large stressed accounts. Under the scheme, the outstanding debt of a stressed borrower is bifurcated into sustainable debt and equity/quasi-equity instruments, which are expected to provide upside gain to lenders when the borrower turns around. The sustainable debt should not be less than 50 per cent of the current funded liabilities and banks are not allowed to offer any moratorium on repayment on the sustainable part of the debt. However, they will be allowed to rework stressed loans under the supervision of an overseeing committee.
- The Strategic Debt Restructuring Scheme was revised in February 2016, wherein banks are permitted to upgrade an asset to the standard asset category if they divest at least 26 per cent of the stake to a new promoter within the specified period of 18 months. At the same time, RBI asked lenders invoking the scheme to make sufficient provisions (to the tune of 15 per cent of the loan value) to tide over the possible loss in value of the equity they acquire in lieu of debt and residual loans. The apex bank has also reduced the proportion of lenders (by number) required for approving the corrective action plan to 50 per cent from the earlier 75 per cent.
- RBI revised the policy framework for external commercial borrowing (ECB) which came into effect from December 2015. The revised ECB framework comprises three tracks (on the basis of tenure and currency of the loan). Recently, in March 2016, RBI eased ECB norms for the infrastructure sector. Infrastructure companies, non-banking finance companies (NBFCs), holding companies and core investment companies that lend to the sector have been permitted to raise ECBs up to $750 million, with a minimum maturity of five years, subject to 100 per cent hedging.
- The central government relaxed foreign direct investment (FDI) norms for sectors such as aviation, banking, railways, construction, and insurance and pension funds. Investment limits have been raised to 100 per cent in domestic scheduled and regional air transport services, construction development projects, exploration activities in oil and natural gas fields, railway infrastructure projects, asset reconstruction companies and NBFCs. For the insurance and pension funds sector, the FDI limit has been raised from 26 to 49 per cent under the automatic route.
- In June 2016, the Ministry of Finance appointed the chief executive officer of the NIIF, India’s maiden sovereign wealth fund. An initial budgetary allocation of Rs 40 billion has been made in Budget 2016-17 for the fund. The NIIF has so far signed MoUs with the Qatar Investment Authority, the Russian Nanotechnology Corporation and the Abu Dhabi Investment Authority to explore investments, but there have been no formal announcements of financial commitments yet.
- In May 2016, the Securities and Exchange Board of India (SEBI) released norms for the public issue of InvIT units, in an effort to make it easier for cash-starved developers to raise capital from the public. The new norms pertain to the appointment of merchant bankers, disclosures in the offer documents, and filing of draft papers and keeping them in the public domain for at least 21 days.
- New multilateral institutions – the Asian Infrastructure Investment Bank and the New Development Bank – officially opened in January 2016 and July 2015 respectively. They provide an additional financing avenue for infrastructure projects.
- With regard to the bond market, many policy amendments were made to encourage bond issuances. In January 2016, SEBI approved new norms for issuing and listing of green bonds in the stock market. Further, in September 2015, RBI permitted banks to provide partial credit enhancement to bonds issued by infrastructure companies. It also introduced guidelines for the issuance of rupee-denominated bonds (masala bonds) by Indian corporates to overseas investors under the ECB route.
- The Committee on Revisiting and Revitalising the PPP Model of Infrastructure Development submitted its report in January 2016. The committee suggested broad guidelines for the next generation of public-pivate partnership contracts, while better allocating and managing risks.