Just like in the banking sector, the government is looking at consolidation in the infrastructure financing space. The government is exploring the possibilities of consolidation by merging companies like India Infrastructure Finance Company (IIFCL), Power Finance Corporation (PFC), IFCI and Rural Electrification Corporation (REC) to create one or two large public-sector entities with adequate financial muscle to lend more for various infrastructure projects, and that, too, for a longer period, a senior government official told FE. The idea is at an early stage of discussions and a formal proposal on this issue is yet to be floated, said the official. Also, the viability of such mergers (which entity will be merged with whom, etc) will have to be explored in detail, he added.
The move seems prompted by the fact that public sector banks, saddled with huge toxic assets, are incapable of lending much to cater to the huge fund requirements of long-gestation infrastructure projects. With the government stepping up focus on infrastructure through various initiatives like smart cities and highway and shipping projects, funding the required investments remains a huge challenge. This is especially true when banks are struggling to resolve stressed assets worth Rs 9.64 lakh crore (both gross non-performing assets and restructured standard advances, as of December 2016). Earlier this year, finance minister Arun Jaitley had said the country required investments worth an estimated Rs 43 lakh crore (about $646 billion) in infrastructure over the next five years. As much as 70% of these required investments will be in power, roads and urban infrastructure, he had said. The long-term loans and advances of REC stood at Rs 1,77,352 crore as of March 2017, against Rs 1,57,797 crore a year earlier. Similarly, IIFCL’s long-term advances touched Rs 32,724 crore as of March 2017, compared with Rs 30,420 crore a year earlier. IFCI — which slipped into losses of Rs 458 crore in FY17, against those of Rs 337 crore in FY16 — sanctioned loans of Rs 7,923 crore in the last fiscal.
The policy is in sync with the government’s intention to create few large players in the banking sector as well. Already, five associates and the Bharatiya Mahila Bank became part of State Bank of India from April 1. State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore were merged with SBI. The finance ministry has already indicated that India needs five-six large public sector banks of global size and that a large consolidation in the banking sector would be done at an appropriate time. It has already tasked the NITI Aayog with the job of preparing a report on the consolidation.