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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. The National Bank for Financing Infrastructure and Development (NABFID) raised Rs 10,000 crore in its maiden bond market debut. Recall that NABFID was operationalized specifically to finance infrastructure projects through debt and has an ambitious target of investing Rs 1 lakh crore this year. In this interview with CNBC-TV18, the infra-financier’s chief said that disbursements so far amount to Rs 15,000 crore with another Rs 50,000 crore in the sanction pipeline.
This is a drop in the vast ocean of infrastructure spending this year, but NABFID is a new baby in lending. India’s roads, ports, airports, power grids and even vanity projects have been financed predominantly by banks. A third of bank loans go towards infrastructure and the increase in infra or should we say nation-building in the past has coincided with a surge in bank credit towards it. Indeed, the infra boom during 2004-2008 when gross capital formation growth averaged 20 percent also saw bank credit to infra grow at an average of 45 percent.
We know how that turned out to be a punishing bad loan cycle and death sentence to some banks later, but the fact remains that credit has fired up infra spending and vice-a-versa always.
Is a similar virtuous cycle at play now amid the widespread optimistic rhetoric around infrastructure again?
The government has gone to town about infrastructure spending, companies are cooing about the opportunities to build infra with analysts noting the lift-up GDP growth will get in case India’s consumption doesn’t hold up well. The numbers also tell a cheering story. New investment proposals have soared in recent months and the January-March quarter saw the highest ever amount. We too wrote how capex has powered GDP growth in the final quarter of FY23 and could herald the beginning of the long-awaited corporate capex cycle.
Financing this cycle is as critical as it was before. But once burnt, twice shy bankers seem to be taking it slow this time. The growth in loans to the infrastructure sector has slowed dramatically in the past five months. In April the growth was a mere 1.7 percent. Over a longer period of the past three years too, it has remained in the low single digits. This does not augur well for capex hopes. But several avenues of financing have opened up with regulatory liberalization in the past few years. Even here, the picture isn’t robust. This Business Standard article highlights how infrastructure focused alternative investment funds (AIF) are growing slower than before. AIFs are funds that attract wealthy investors, mostly institutional and high net worth pockets. It seems that even deep pocketed risk-takers are yet to have the conviction for spending on India’s infra sector.
Will the current sentimental lift and government jawboning for infrastructure turn into a reality? Or will it just resemble a requiem for the eternal dream of nation building? Only time will tell how this cycle will pan out. Memories of the past one aren’t pleasant.
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