Skip to main content

Infra projects' credit system expected soon

By
Six registered agencies are said to be working collectively to come up with a new ratings system for such projects
In a global first, India is set to come out with a new ratings system for infrastructure projects in the coming months, to boost domestic funding and foreign investment in the infra space. Such a move will help prospective investors put money in a project based simply on the merits of the undertaking.
India is also likely to ask the BRICS Bank to adopt the same ratings system, as the multilateral development lender plans to set up a new credit ratings system for infrastructure projects.
Six registered credit agencies, including Crisil, CARE Ratings and India Ratings are said to be working collectively to come up with a new ratings system for such projects, Business Standard has learnt. In his 2016-17 Budget speech, Finance Minister Arun Jaitley had said that “a new credit rating system for infrastructure projects which gives emphasis to various in-built credit enhancement structures" would be developed, instead of relying on a “standard perception of risk which often results in mispriced loans”.
“The credit ratings agencies are at an advanced stage of releasing the new ratings system,” Economic Affairs secretary Shaktikanta Das told Business Standard. “BRICS Bank wants to set up new credit ratings system for infra projects. Since India is coming up with its own ratings for infra projects, we feel they should adopt ours. No country has it anyway,” said another government official aware of the developments.
The move will help revive infra projects in the country. The new ratings system will look at variable risk factors in public-private partnership projects to assess their viability. The new ratings will differentiate between credit rating of contractor versus the project. "Generally, infra projects - be it ports or airport - are given corporate ratings for the contractor. We have a legacy of relationship banking instead of project financing. The new ratings agency attempts to change that,” said the official cited above. Construction projects attract low corporate ratings due to their high gestation period. “These are not necessarily high-risk projects. For instance, road projects have a monopoly purchaser in the government, with under-rated debt, no obsolescence, and 20 years of assured traffic. Only construction takes longer.  Actually, this is a low-risk project and should get ‘AAA’ rating,” added the official. The government has asked ratings agencies to distinguish between corporate ratings and infra ratings by adopting 1,2,3 or x,y,z instead of the usual AAA or BBB.
Business Standard New Delhi,18th May 2016

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Healthy balance sheets augur well for economy: RBI Governor Sanjay Malhotra

By
  Large tariffs by the United States administration and elevated geopolitical risk have increased near-term global financial stability risks, and along with weather events pose downside risks to domestic growth, Reserve Bank of India(RBI) Governor Sanjay Malhotra said in the foreword to the Financial Stability Report released today.Noting that domestic growth momentum is buoyed by strong domestic drivers, sound macroeconomic fundamentals and prudent policies, Malhotra said: “External spillovers and weather-related events could pose downside risks to growth.”On the other hand, he said the outlook for inflation is benign, and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target.Commenting that the structural shifts reshaping the global economy are making policy intervention challenging, the Governor emphasised the need for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and...
Post a Comment
Read more