Kolkata-based Srei Infrastructure Finance, a well-known name in India's infrastructure finance business, recently decided to exit the business citing adverse industry situation in a slowing economy.
In an exclusive interview with Moneycontrol, Hemant Kanoria, Chairman, Srei Infrastructure Finance, talks about a range of issues, including the reasons behind the company's change in strategy among other industry issues.
Edited excerpts:
Q. Srei stopped infrastructure project financing earlier this year. Is there any re-thinking?
A. Srei's board, in the year 2014-15, had taken a decision that the company will reduce the infrastructure project financing portfolio gradually over the years due to increased risks in the sector. In the past few years, our focus has been to grow the equipment finance portfolio, which has remained our core business for more than three decades.
We were witnessing a silent recovery in demand for equipment before the outbreak of COVID-19. We are confident that when the situation becomes normal, the demand for equipment will pick up with the awarding of new EPC contracts. We are veterans in the infrastructure financing sector and it will be sad if at an appropriate time we do not make a comeback.
Q. India has a big infrastructure funding gap. There is Rs 102 lakh crore of infrastructure investment plans that the government talks about. Isn't it unwise not to benefit from this?
A. There is no doubt that India needs quality infrastructure and requires significant investments in creating them. However, the current situation is not conducive for private sector investments in infrastructure projects. Moreover, investors often get entangled in a maze of clearances and approvals for years. The laws, guidelines and policies should be made more investor friendly to encourage private participation, especially in the current environment when risk aversion has enhanced significantly. The government will need to create an enabling environment to encourage private participation in infrastructure sector or they may need to follow the 'China model', where major investments in infrastructure are made by the government.
Q. Investors suffered as Srei's shares fell sharply in last one year. Your comments.
A. It is unfortunate that Srei's share price has fallen. Nevertheless, from the business point of view, our fundamentals continue to remain strong. We continue to enjoy strong relationships with our customers, have a dominant presence in high growth businesses like equipment finance and have managed our liquidity well.
Q. What is the way ahead for Srei?
A. We have been focusing on growing the equipment finance business before the outbreak of COVID-19. Going forward, we are quite hopeful that, by the fourth quarter of this financial year, sale of construction, mining and healthcare equipments will improve and we will also see growth in our business.
At this juncture, our attention is towards managing and strengthening our customer relationships further; keeping our employees motivated and moral of all our stakeholders high.
Q. The government and the Reserve Bank of India have announced a slew of measures to combat the debilitating impact of COVID-19 on the Indian economy. Are these measures enough?
A. The measures announced by the Union Finance Minister and the Reserve Bank of India in the last few weeks are going to have medium to long-term benefits and will alleviate the liquidity conundrum to a certain extent. However, in my opinion, a few more steps are needed simultaneously to provide support to all businesses.
The Reserve Bank of India should consider allowing one-time restructuring of loans based on the cash flow. Furthermore, the loan accounts should be classified as "standard" so that no provisioning is needed for the same. This will help stem the tide of NPLs and prevent businesses from tipping over into default. If the one-time restructuring is not allowed to the banks, there will be large NPLs.
Q. What other measures can the government take?
A. Both central and state governments should advise all their agencies to expeditiously clear all outstanding payments to contractors and businesses. Also, all outstanding tax refunds and tax-related disputes must be resolved at the earliest to release payments. Huge sums of money are stuck in arbitration awards against government agencies which have been dragged into the higher courts, leading to inordinate delays. Government should honour the arbitration awards and instead of further litigation, release the payments against the awards. These simple yet effective measures will ensure liquidity for businesses and help many of them survive the current crisis.
Q. What is the liquidity situation for NBFCs in general and Srei in particular?
A. Following the IL&FS episode, many NBFCs have been facing a liquidity crunch as banks became cautious lenders and virtually stopped lending to the sector. The outbreak of COVID-19 has accentuated the problem further. Hence, there is an immediate need to allow one-time restructuring of loans to help banks, NBFCs and their borrowers to weather the crisis.
At Srei, we have been able to manage our liquidity comfortably. We hope that going forward the situation will gradually improve in view of the support being given by the government and the Reserve Bank of India to businesses.
Q. There has been a tug-of-war between banks and NBFCs on extending the benefits of moratorium to NBFCs. Is this issue resolved?
A. NBFCs are not manufacturers of goods; they borrow money from banks through NCDs/ECBs, etc. and lend to SMEs and MSMEs. As NBFCs were asked to offer moratorium to their borrowers it was only fair that they should have also been allowed moratorium on their loan and interest payments. Otherwise, it creates a mismatch in their cashflows. NBFCs and banks have been engaged in discussions on this topic and most of the banks have already accepted the contention; a few banks and financial institutions, however, have still not accepted it.
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