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Finance Ministry urges central bank to change stance on road project loans

18 Mar 2013 Evaluate

In order to increase the investment in road projects, the finance ministry has urged the Reserve Bank of India (RBI) for considering a change in its stance to treat loans to road projects as unsecured.

Concerned about the National Highways Authority of India’s (NHAI) performance, which achieved only one-tenth of its ambitious 8800 km target for this financial year, the road minister CP Joshi met the finance minister to discuss financing challenges in the sector including RBI's treatment of road sector loans as unsecured.

Central bank treats road sector loans as unsecured, as land in road projects is publicly owned and loans taken for them cannot be backed by assets, which makes the borrowing cost higher for the projects. In 2012, the project finance for infrastructure projects in the country has gone down by 49 percent. 

The roads ministry has sent multiple suggestions to the finance ministry on ways to ease the fund crunch in the sector. If the central bank sheds its reluctance to treat highway sector lending as secured loans, the credit flow to the fund-starved highway sector could grow by at least 20 to 25 percent.

Recently, in other positive development the Supreme Court allowed delinking of the two clearances as sought by the Ministry of Environment and Forest (MoEF). The NHAI had sought Supreme Court intervention allowing delinking of environment clearance from forest approval. 20 projects long stuck up due to delay in forest clearances would be executed soon after clearance from MoEF in the wake of Supreme Court orders.

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