Centre establishes NBFC under Sagarmala project

01 Aug 2024

The shipping ministry has proposed the launch of a non-banking finance company (NBFC) under its Sagarmala initiative to address the financing needs of the shipping and shipyard sectors, according to two senior officials familiar with the matter. The finance ministry is currently evaluating the proposal, the officials from the shipping ministry told ET. The non-bank lender will also require clearance from the Reserve Bank of India to commence lending. The officials expect the shipping ministry to secure all necessary approvals and launch the new NBFC by December.

The NBFC is intended to act as a specialist lender for shipping companies and shipyards, which often face difficulties in securing bank loans, the officials stated, requesting anonymity. They did not disclose the anticipated shareholding structure of the proposed NBFC but mentioned that it would be established independently, with its specific structure determined after Sagarmala receives the necessary approvals.

The NBFC is expected to raise funds from banks and the corporate bond market for on-lending. One official remarked that their goal is to offer competitive financing options to the shipping and shipyard sectors. In the current economic climate, access to debt financing, particularly for these industries, is limited, the official noted. Based on recent interactions with the sector, it was found that the shipping and shipyard industry lacks infrastructure status, leading to constrained financing for that segment. Consequently, sectoral non-banking financial companies are deemed crucial for the industry's growth.

Shipping is emerging as a new investment opportunity in India, but the country currently lacks a specialist lender for the industry following the merger of the Shipping Credit & Investment Corporation of India with ICICI in 1997, a senior bank official pointed out. Unlike the power sector, which has financiers like Power Finance Corp, REC, and Indian Renewable Energy Development Agency, the shipping and shipyard industry players rely on banks for their financing needs. However, the failures of two of India's largest shipyards "ABG Shipyard and Bharati Defence (formerly Bharati Shipyard)" have made bankers cautious about lending to this sector, the banker added.

In shipping, banks do not accept ships, the main assets for companies in the sector, as collateral, making it challenging for these companies to raise funds. As of June 28, outstanding bank loans to the shipping industry totalled Rs.7,019 crore, which was 3.7% lower than the previous year, according to RBI data. The official mentioned that the NBFC would be formulated under Sagarmala to provide equity and funding support for the maritime sector. While there has been equity investment, there is also a need for lending in light of the sector's vision. The proposal has been submitted to the Ministry of Finance and is being seriously considered.

Under the Sagarmala national programme, launched in 2015, 839 projects worth Rs 5.8 trillion have been undertaken across five key areas: port modernisation and development, connectivity enhancement, port-led industrialisation, coastal community development, and coastal shipping and inland water transport.