Project financing by banks to remain sluggish: Experts

MUMBAI: Project financing by commercial banks and other financial institutions is likely to remain sluggish due to the deteriorating economic environment, according to leading bankers, though they differ on the timeframe for a recovery in the segment.

"The project finance segment has seen a slowdown in the current financial year due to the economic environment and lack of momentum on the regulatory front. Things are not likely to change till the last quarter," Vijaya Bank Executive Director Subhalakshmi Panse said.

She, however, added that once decision-making in key infrastructure sectors like power becomes faster, this segment will pick up.

Panse said most of the disbursements are happening for already-sanctioned loans, as few new projects are coming up for financial closure.

"If there were 10 new projects seeking financing last year, the number has dropped by half this year," she said.

Project financing has been a very significant part of the total loan portfolio of banks, as expenditure on infra projects has been on the rise in recent years.

However, the higher cost of borrowing, regulatory hurdles and global economic uncertainty has led to a slowdown in the segment.

Karnataka Bank Managing Director Jayaram Bhat is also not very optimistic of an early recovery.

"Project finance segment has definitely slowed down... We are only disbursing those loans which have been sanctioned earlier. The sluggishness is expected to continue for the next six months," he said.

However, the Mangalore-based private sector lender, which extends project finance to the industrial sector, is hopeful of making up the shortfall from retail lending.

IDBI Bank Executive Director R K Bansal said, "Overall, growth in this sector has slowed down. Previously sanctioned loans are only being disbursed now. However, we expect a growth of 18-20 per cent in project finance in the current fiscal."