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Jan 24, 2012, 03.53 PM IST
Infrastructure company heads tell CNBC-TV18 that the biggest beneft of RBIís decision to cut CRR will be far easier access to banking funds.
Hemant Kanoria, chairman and managing director of SREI Infra Finance believes that the central bankís move is a sign of the easing to come, which will ďtrigger off investment in the infrastructure space.Ē
Below is an edited transcript of their interview with Reema Tendulkar and Ekta Batra. Also watch the accompanying videos.
Q: Do you think the investment and the sentiment towards infrastructure and lending will now improve now that we have got the CRR and the indications are that perhaps going forward we will see easing and rate cutting especially on the repo rate side that the investment climate will now improve and there will be a substantial difference to infrastructure companies?
Parikh: I think this has been a positive move especially for our industry with the CRR rate being reduced by 50 bps. It does bring in a significant piece of liquidity into the system; it enables especially infrastructure players where there is a large reliance on infrastructure project financing and debt to avail more funds from the banking and the financial community. So it certainly helps getting project finance far more easily with little bit of competitiveness in interest rates with liquidity in the system.
Q: What were the execution bottlenecks that you were facing till now and what sort of ease do you expect going forward with what we have seen from the monetary policy this time?
Parikh: More than from an execution perspective, I think the biggest beneficiary of this process will be far easier access to banking fund. I think in the past few months with the interest rate hikes that we have seen it does tend to impact the projects in with respect of high cost of debt with no changes in terms of repo rates. The reduction of CRR brings a bit of liquidity which leads to more competitiveness amongst the banking industry, which means we can avail more optimum rates in infrastructure financing.
Q: Do you expect easier credit from 50 bps cut in CRR. Will that happen immediately and for substantial investment to flow through in the infrastructure space? What is the kind of cut that perhaps the industry needs?
Parikh: I think this is the first signal and a positive move from a policy perspective. As you all have been aware, there was an expectation at some point of time back of also a reduction in interest rates. However that has not happened. Having said that, the last couple of hikes in interest rates were also not been passed on to the end consumer, it was already the credit offtake. So to that extent liquidity does help the process and hopefully if this gets converted into also reduction of interest rates in the near quarters, then that will certainly benefit the industry.
Q: Will 25 bps cut perhaps something which we might see maybe in the next one-two months help or will you need to see a significant amount of a rate cut for the benefit to directly to flow into the infrastructure space and for projects to get kick-started investment plans to come back to the drawing board?
Parikh: Certainly interest rate cuts will be required, liquidity only helps in bringing in a bit of easier access to financing, but finally one will need to see interest rate cut. As I just mentioned, this just seems to be a broader positive signal and if we see some interest rate cuts over the next few months then that will help the industry.
Q: The amount of debt that you are servicing and what would be the trajectory on the debt levels going forward? Also, what is your expectation in terms of order inflow possibly factoring in that there could be rate cuts in the near future?
Parikh: From a perspective of outstanding debt at the holding company we are at a debt of a little over 200 crore which is not very significant. We have also filed our rights issue for which the draft letter offer has been filed and one of the objectives is to retire this debt which is standing on our book. So from a perspective of debt thatís not very large on our standalone books.
From project order intake perspective, we have already received the letter of intent for toll road project of Patna-Buxar and there are a couple of other bids where we are the lowest bidder. We are yet to receive from the client the award and we are waiting for the same.
Q: Your reaction on what we have seen from the monetary policy?
Kanoria: I think itís a very positive step taken by RBI. CRR has been cut so it will improve the liquidity in the system. The other area, which we are thinking as the RBI had also given an indication of reduction of the repo rate by at least 25 basis points also, it would have sent an indication to the market that now the interest rates would be easing and that would trigger off investment in the infrastructure space. So I think RBI must be waiting for the next time and so this time CRR itself is a good indication.
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