DFIs with technical experts seem to be the solution to big infrastructure financing
New Delhi, Aug 23: For a developing country like India institutional financing is an important component of development but financing got a beating in India with huge accumulation of bad debt and non-performing assets (NPAs), so much so that Development Financial Corporation and State development financial corporation that had share of seven per cent in the financial market till 1991 has gone down to 0.8 per cent.
Indian economy is worth $ 2.6 trillion at the moment and if the projection of India to become $10 trillion economy has to be achieved, institutional financing is very important for the fast growth. Nikhil Sahni, group president MNC-Corp and Banking Yes Bank, said that Development Financial Institutionss (DFIs) are coming back. These institutions tend to be more into infrastructure but if we don't have such institutions development will be hampered. The objective of DFIs is important but return in the right form is equally important. He said that though Insurance Regulatory and Development Authority (IRDA) has started playing important role in the recent times. There is a need to understand that loans must could be insured for stopping them in turning into NPAs. However, asset and liability mismatch continues.
Gopal Krishna Agarwal, the economist, said that DFIs are necessity for the economic growth and experts on the sector specific financing is properly done once it is rightly assessed by experts.
IDBI Bank CEO B Sriram has given historical perspective of the DFIs and said that infrastructure projects have long gestation projects. But they keep in mind sectoral and geographical focus. DFIs create good technical team that can evaluate project that capability commercial banks don't have.
He said that liquidity mismatch is another area that needs to be addressed, success of infrastructure project financing will take more time. In most of the cases these financial institutions are closed when there is more NPAs but problem of DFIs are not just solved by closing them but there should be some other way out. Central government has always been the better sovereign gaunter, B Sriram said that $500 billion is required to fix the gap of bad debt.
On being asked that it is not possible for every bank or financial institution to have an expert on the subject it wants to finance, Gopal Agarwal said that If you don't understand the subject you are financing, it is difficult for you to survive in the industry. He further said that accountability cannot be fixed if help of outsider is taken or the matter is outsourced. So it is important for financial institutions to have such an expertise.
Sriram said, "We take help of experts in big projects but over a period of time some parameters becomes common in the industry. We can't be sector specialist but we do take help of outsourcing and we too develop some expertise."