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Banks turn averse to new infra loans as risks rise

Amid growing concerns of rising risks in infrastructure loans, lenders turn averse to fresh infra-lending, so far the key driver for overall credit off-take. Rather, banks are looking at manufacturing sector and mid size corporates to diversify their loan portfolios.

June 27, 2011 / 09:46 AM IST
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Saikat Das

Amid growing concerns of rising risks in infrastructure loans, lenders are turning averse to fresh infra-lending, which, till now, was one of the key drivers for overall credit off-take. However, now banks are rather looking at the manufacturing sector and mid-size corporates to diversify their loan portfolios.

"We are going slow on infrastructure loans; we are taking cautious measures in sanctioning them," Mohan Tanksale, executive director, Punjab National Bank (the second largest lender) told "The power sector has some issues. Unless those issues are resolved, we would not like to take any fresh exposure in power infrastructure companies. We will increase our focus in manufacturing sector through term- and working-capital loans," he added.

Infrastructure sector accounts for a significant chunk of banks' loan books. Banks lent Rs 2,69,200 crore to power sector while Rs 2,57,500 crore to other infra companies in FY11, according to data provided by the rating agency - ICRA.


Infrastructure loan exposure (%)

Loan book in FY11

(Rs in crore)

Punjab National Bank



Bank of Maharashtra



Union Bank of India



State Bank of India



Bank of India



Such concentration, according to analysts, basically carries two-pronged risk factors. Infra companies may default on repayments as projects are getting stalled. In turn, it result in higher non-performing assets of banks. Moreover, infra loans with longer tenure (at least 10 years) could lead to asset