Exclude infra SPVs from group exposure cap, say banks

With India’s huge plans for expansion in the infrastructure segment and most of them to be developed as SPVs, bankers have a serious concern that their group exposure limits would exceed routinely.  “On the very basis of sanctions, we would be exceeding the exposure limit and the disbursement side will start reflecting the group exposure limit in two to three years,” said a top official of Punjab National Bank here.

Currently, the present single group exposure limit prescribed is 40 per cent and the single company exposure limit is 20 per cent of the banks’ infrastructure funds. In this context, YES Bank Executive Director (Infrastructure Banking & Corporate Finance) Ashish Chandak, said even as group exposure and single company exposure is 40 per cent and 20 per cent respectively, there is, however, a flexibility of extending it to around 45 to 50 per cent in certain cases.   “As such, this single company and single group exposure exceeding the group exposure limit is a concern.”  “We don’t hear much on that side – group exposure limit – at present.

By the end of this calendar year, we may foresee such a problem,” said IRB Infrastructure Managing Director Virendra Mhaiskar.  The group exposure limit is, typically, an issue for the infrastructure segment unlike in other sectors where expansion happens within the same company or under the same company name with no involvement of SPVs.

Strong lobbying

To deal with this issue, banks and infrastructure companies have been lobbying with authorities not to consider SPVs formed as subsidiaries to a group company as a part of overall group exposure. Banks wonder if it is SPV-based financing then why is the exposure being clubbed in the group limit?

As the debate continues, other school of thought is that not including SPV in the group exposure limit is not justified as the group company normally shows a consolidated picture reflecting a better top-line figures to impress its investors.