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He further noted that the underdeveloped financial system and the limited market for infrastructure debt have made the sector heavily dependent on banks | File image
NaBFID should aim to develop a self-sustaining business model over the medium term that does not rely on continuous government support, said M. Rajeshwar Rao, deputy governor of the Reserve Bank of India (RBI), on Thursday.
“NaBFID, over the medium term, should plan for self-sustainable operations under a business model that is not reliant on continuous government support,” Rao said.
He further noted that the underdeveloped financial system and the limited market for infrastructure debt have made the sector heavily dependent on banks and non-banking financial companies (NBFCs) for financing. However, the rise in non-performing assets (NPAs) among banks over the past decade, along with a significant debt default by a major NBFC involved in infrastructure finance, has dampened the appetite of these financial intermediaries for infrastructure investments.
“The comparatively underdeveloped financial system and the market for raising debt for infrastructure have made the sector reliant on banks and NBFCs for its financing needs. However, the spike in NPAs in banks over the last decade and the debt default by a systemically important NBFC engaged in infrastructure finance have reduced the appetite of these intermediaries for infrastructure financing,” he said.
The deputy governor further highlighted that high costs and long gestation periods complicate infrastructure financing and lead to asset-liability mismatches. Delays in approvals, clearances, land acquisition challenges, and breaches of agreements exacerbate the risks, often resulting in cost overruns.
He also said that the interdependence of infrastructure projects adds another layer of complexity. The success of one project often depends on the availability of complementary infrastructure. This interconnectedness means that delays or issues in one project can affect others, making the financing process more intricate. Effective infrastructure development requires a holistic approach, where projects are viewed as part of an interconnected network rather than in isolation. Successful outcomes depend on synchronised financial planning, meticulous execution, and leveraging synergies across projects.
First Published: Sep 12 2024 | 11:30 AM IST
