Highway contractors demand infra loan provisions fixed at 2%

03 Jun 2024 CW Team

Additionally, the contractors have urged that the government consider 90% of the available land for financial closure rather than the 50% that was originally indicated and that the repayment moratorium be extended from the six months that the RBI had advised to a year.

The National Highways Builders Federation (NHBF) stated in its submission to the National Highways Authority of India, the finance ministry, and the Reserve Bank of India that increasing the provisioning from 0.4% to 5% would pose the greatest challenge to project viability. They explained that this increase in provisioning would lead to higher interest costs, subsequently raising the overall project expenses for both investors and the government.

Additionally, the federation mentioned that they believed implementing a 2% provisioning could be accomplished more swiftly by 2025?26, as opposed to waiting until 2026?27 for the phased implementation of 5% proposed by the RBI.

Regarding the availability of land for the financial closure of infrastructure projects, the NHBF suggested that a land availability of no less than 90% should be deemed sufficient. They emphasised that land availability presents the most significant risk factor, often causing delays or even project terminations.

Furthermore, advocating for an extension of the moratorium period to one year, the NHBF argued that this period is frequently utilised by borrowers to meet initial cash flow needs for stabilising operations. They cautioned that restrictions on this period could strain the company's cash flow and potentially stress the project, especially concerning build-operate-transfer projects.

Instead of the 5% that the Reserve Bank of India had proposed, highway construction contractors proposed fixing the provision that lenders must make against funding their projects at 2%. They said that this would negatively impact the viability of the projects. Lenders are currently required to reserve 0.4% of loans made for highway construction. The new draft rules on infrastructure funding by the banking regulator propose a significant rise in this. Additionally, the contractors have urged that the government consider 90% of the available land for financial closure rather than the 50% that was originally indicated and that the repayment moratorium be extended from the six months that the RBI had advised to a year. The National Highways Builders Federation (NHBF) stated in its submission to the National Highways Authority of India, the finance ministry, and the Reserve Bank of India that increasing the provisioning from 0.4% to 5% would pose the greatest challenge to project viability. They explained that this increase in provisioning would lead to higher interest costs, subsequently raising the overall project expenses for both investors and the government. Additionally, the federation mentioned that they believed implementing a 2% provisioning could be accomplished more swiftly by 2025?26, as opposed to waiting until 2026?27 for the phased implementation of 5% proposed by the RBI. Regarding the availability of land for the financial closure of infrastructure projects, the NHBF suggested that a land availability of no less than 90% should be deemed sufficient. They emphasised that land availability presents the most significant risk factor, often causing delays or even project terminations. Furthermore, advocating for an extension of the moratorium period to one year, the NHBF argued that this period is frequently utilised by borrowers to meet initial cash flow needs for stabilising operations. They cautioned that restrictions on this period could strain the company's cash flow and potentially stress the project, especially concerning build-operate-transfer projects.

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