LIVE: NaBFID Infra Conclave 2024 |Can Insurance Cos Invest Long-Term Funds In Infra Projects?

Summary

In this discussion, Mr. KV Kavath, Chairman of Nabard, explains the resurgence of infrastructure financing in India, facilitated by the National Bank for Infrastructure and Development's ability to raise substantial funds. He highlights the shift in risk perception due to reduced default rates and the availability of long-term financing from sources like insurance and pension funds. Mr. Kavath also addresses the role of Nabard in providing credit enhancement and the potential for infrastructure bonds to attract foreign investment. He expresses optimism about India's growth prospects, predicting a steady rise beyond 7%, bolstered by infrastructure development and a strengthening currency.

Takeaways

• 🏦 The National Bank for Infrastructure and Development (NABID) has raised about 28,000 crores and is seeing increased interest from commercial banks, insurance companies, and regulators in financing infrastructure.
• 📉 There has been a significant drop in default rates for infrastructure projects, making them more creditworthy and attractive to investors.
• 💹 The long-term financing gap for infrastructure projects is being addressed by the development of pension, insurance, and mutual fund industries, providing a range of funding sources.
• 📈 NABID's capital is expected to significantly increase in the coming year and a half, with plans to raise an additional 90,000 crores through the capital market.
• 💼 The insurance and pension fund, which is growing at nearly 20%, is seen as a potential major source of patient capital for infrastructure investment.
• 🏢 Banks may gradually increase their involvement in infrastructure financing, balancing their portfolios with a mix of short-term and long-term assets.
• 🌐 Foreign investment in Indian infrastructure bonds could increase due to index inclusion and a growing appetite for non-Sovereign investments.
• 📊 The discussion suggests that India's growth rate is expected to be over 7%, with infrastructure and housing being key drivers of this growth.
• 💬 There is an ongoing conversation about the need for better resolution processes, such as the Insolvency and Bankruptcy Code (IBC), to improve the lending environment.
• 💵 The Reserve Bank of India's proposed higher provisioning requirements for infrastructure loans may impact the cost of borrowing, a topic that requires further discussion and understanding.

Q & A

What is the primary reason for the resurgence in infrastructure financing in India?

The National Bank for Infrastructure and Development (NABARD) has been successful in raising significant funds, and there is increased interest from commercial banks, insurance companies, and the entire financial ecosystem in providing long-term financing for infrastructure projects.

How much capital has NABARD been able to raise, and what is its future fundraising goal?

NABARD has raised about 28,000 crores so far. They expect this number to significantly increase, almost doubling over the next year and a half. They have a capital base of 25,000 crores and have raised 30,000 crores, but they estimate needing an additional 90,000 crores to meet their goals, which they plan to raise from the capital market.

What role do pension funds and insurance funds play in the current infrastructure financing landscape?

Pension funds and insurance funds provide a source of patient capital that is suitable for long-term infrastructure investments. With the growth of these industries, they are seen as potential major funders for infrastructure projects, offering higher rates of interest than government securities.

Why have banks been hesitant to invest in infrastructure projects despite the potential for higher returns?

Banks have been hesitant due to the mismatch between the long-term nature of infrastructure projects and the shorter maturity of bank financing. Additionally, past issues with defaults and delays in projects like land acquisition and environmental clearances have made banks cautious.

How has the default rate for infrastructure projects changed, and what does this indicate about the risk profile of these investments?

The default rates have dropped dramatically to less than 1%, indicating an improvement in the creditworthiness of borrowers and a reduced risk profile for infrastructure investments.

What is the current state of the bond market in India, and how does it impact infrastructure financing?

The bond market in India is active, which is crucial for long-term infrastructure financing. NABARD is positioned to take advantage of this market to raise the necessary funds for infrastructure projects.

What are the challenges that NABARD faces in terms of funding and how do they plan to overcome them?

NABARD faces the challenge of raising additional funds to meet their objectives. They plan to overcome this by increasing their presence in the capital market and debt market to attract more investment.

How does the Indian government's fiscal policy and the country's economic growth impact the infrastructure financing landscape?

The government's fiscal policy, including its borrowing habits and fiscal deficit reduction, influences the availability of funds for infrastructure projects. Economic growth, especially the expectation of the rupee strengthening, can attract more foreign investment in infrastructure bonds.

What are the historical parallels that suggest the Indian rupee might appreciate, and what does this mean for infrastructure financing?

Historical comparisons with Japan and China show that as economies grow, their currencies tend to strengthen. This appreciation could make Indian infrastructure projects more attractive to foreign investors, potentially leading to more foreign capital inflows.

What regulatory changes or improvements does the chairman of NABARD believe could enhance infrastructure financing?

The chairman suggests that the Insolvency and Bankruptcy Code (IBC) process could be improved, particularly in terms of speed and efficiency. Additionally, he mentions the need for better resolution processes in various areas to boost confidence in infrastructure investments.