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Bank funding for large projects may gain momentum

Going ahead, planned or envisaged capex from all sources based on the pipeline projects sanctioned in all preceding years point to a noticeable improvement in 2019-20. The investment cycle appears to be poised to gain momentum in the short to medium term, but its sustainability needs to be watched closely, RBI said.

, ET Bureau|
Last Updated: Feb 19, 2020, 07.35 AM IST
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The investment cycle appears to be poised to gain momentum in the short to medium term, but its sustainability needs to be watched closely, RBI said.
Slowdown in bank funding for large projects is not a recent development. An RBI study shows that banks have gone slow on funding large-value — more than Rs 5,000 crore — projects as not many such new projects are coming up.

The number of new mega projects sanctioned by banks and financial institutions has been small since 2011-12 in the aftermath of global financial crisis of 2008-09.

The share of bank funding of projects costing over Rs 5,000 crore has fallen from 57.5% in FY10 to 23.5% in FY19, reflecting the strong risk-aversion of banks. These are mostly projects in the power and other infrastructure sector.
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However, it is noteworthy that projects already announced and implemented prior to/around the global financial crisis got higher financial capital from multiple sources to execute sanctioned investment plans, the study notes. High-value and mega projects sanctioned or contracted during a particular year affect the phasing profile of projects having similar profiles.

Going ahead, planned or envisaged capex from all sources based on the pipeline projects sanctioned in all preceding years point to a noticeable improvement in 2019-20. The investment cycle appears to be poised to gain momentum in the short to medium term, but its sustainability needs to be watched closely, RBI said.

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