Leading lenders having large infrastructure portfolio such as State Bank of India, ICICI Bank and Axis Bank will benefit the most from new guidelines of the Reserve Bank of India (RBI) that allowed banks to launch infrastructure bonds with special benefits.
SBI has the largest infrastructure portfolio with project loans worth Rs 70,000 crore, while ICICI Bank has an infra portfolio of Rs 25,402.72 crore and Axis Bank Rs 20,706.03 crore.
According to a banking analyst, the yield benefit for banks would be 2% and banks will be encouraged to do more infra lending as the fee income from loan syndications would rise. Also, for public sector banks the return of equity (RoE) will go up. "RoE of private sector banks may slide as their RoEs are much higher than the public sector peers."
A senior SBI official said, "We have Rs 70,000 crore of sanctions of project loans and Rs 45,000 crore of disbursals. We need to still figure out the modalities, and we will shortly launch an infrastructure bond."
To give a push to infrastructure development and affordable housing, RBI allowed exemption of long-term bonds from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) if the money raised is used for funding core projects. The bonds, having a maturity of seven years, will be denominated in rupees.
"Banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to long-term projects in infrastructure sub-sectors," said RBI.
Under the 5/25 structure, banks may fix longer amortisation period for loans to projects in infrastructure and core industries sectors, say 25 years, with periodic refinancing, say every five years. The RBI has issued instructions to banks specifying operational guidelines and incentives in the form of flexibility in loan structuring and refinancing.
Under the new norms, banks will not have to maintain the CRR and SLR for long-term infrastructure bonds. Funds raised through this route will also not be subject to priority sector lending requirements.
It was a long standing demand of banks to raise infrastructure bonds as the longest tenure of deposits can only be ten years, while most of the infrastructure project have life cycle of over 10 to 20 years, which could lead to asset liability mismatches, putting at risk the balance sheet of banks.
Brokerage firm Espirito Santo said in a report that SBI, ICICI Bank and Axis Bank will be the biggest beneficiaries.
"IDFC will be the key beneficiary of these guidelines given fiscal 2018 will be the first year when it would be subjected to these regulatory requirements. IDFC can now grow its loan book in infrastructure without regulatory restrictions and hence the pressure on its RoAs/RoEs as it converts to a bank will be lower than anticipated earlier."
"The guidelines aim to reduce the regulatory arbitrage between banks and HFCs (home finance companies). However, HFCs still enjoys advantages in terms of lower tax rates and no CRR/SLR and PSL requirement while regulatory preemption will be available only for a portion of liabilities for banks," the report said.
RBI has also expanded the ambit of affordable housing. Affordable housing now includes housing loans eligible for priority sector lending by the RBI and individual loans of Rs 50 lakh (for houses of values up to Rs 65 lakh) in metropolitan centres and Rs 40 lakh (for houses of values up to Rs 50 lakh) in other centres for purchase/construction of dwelling unit per family.
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