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Infrastructure lending in India just hit a six-year high, and it might be because of telecom sector

Infrastructure lending in India just hit a six-year high, and it might be because of telecom sector
Stock Market2 min read
  • Total credit for the purposes of infrastructure rose by 18.5% to ₹10.6 trillion in March 2019, the highest figure recorded since 2013, when infrastructure lending rose by 16.5%.
  • This is all the more impressive as total lending to the infrastructure sector had declined for two years prior to the recent financial year.
  • This might be because of accelerating capital investments in the telecom sector. Credit for the construction of telecom infrastructure rose by a staggering 37% in 2018-19.
As a credit crunch hurts India’s shadow banks, it seems that commercial lenders are stepping in to meet credit demand. Bank lending to the infrastructure sector hit a six-year high in 2018-2019.

This is all the more impressive as total lending to the infrastructure sector had declined for two years prior to the recent financial year.

As per the Reserve Bank of India’s data on sectoral deployment of bank credit, total credit for the purposes of infrastructure rose by 18.5% to ₹10.6 trillion in March 2019, the highest figure recorded since 2013, when infrastructure lending rose by 16.5%. This is equivalent to ₹1.65 trillion worth of new loans.

The overall growth of credit, meanwhile, was around 13.2% for last year, also driven by loans to the retail and services sector.

So what explains the jump in infrastructure lending?
It might be because of accelerating capital investments in the telecom sector. Credit for the construction of telecom infrastructure rose by a staggering 37% in 2018-19.

This is likely a result of the heavy competition in the sector, as rivals Jio, Airtel and Vodafone-Idea take on each other not only in terms of price, but network expansion.

In addition, a lot of government contracts were awarded in the previous year for public infrastructure projects like roads and affordable housing, the latter of which was designated an infrastructure sub-sector in 2017-18.

Lending to power firms and for the purposes of road construction rose by 12.3% and 9.5%, respectively.

Going forward, it seems that financing for the purposes of infrastructure will continue to be abundant.

The government is reportedly planning to set up a new infrastructure financing entity to boost the debt papers issued by companies in the sector. Credit enhancements help lower-rated companies improve their bond ratings, which results in cheaper borrowing rates.

SEE ALSO:
Nearly half of Narendra Modi's $1.4 trillion ‘new’ infrastructure promise may be already approved projects

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