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Investing India: 3 Pillars of Speedy NPA Resolution, Infrastructure, and Land Bank Monetization

Mar 29, 2018 9:44 PM 3 min read

As we approach the end of the first quarter of calendar year 2018, it is the right time to take stock of the changes in infrastructure development in India. 2018 started with the promise of significant asset price volatility, globally. As investors reassess their risk barometers to get a better sense of what the rest of the year holds, it is important to look at how infrastructure growth in India fared from a regulatory and investment perspective. Regardless of the global trends, Indian infrastructure has taken strides towards creating a regulatory mechanism and investment climate that encourages more infrastructure investment. In addition to this, financial innovation and creation of new infrastructure in India has also been a hallmark of this period. 


Regulatory Changes


The introduction of the New Restructuring Framework by the Reserve Bank of India (RBI) in February 2018, has further expedited the resolution process of Non-Performing Assets (NPA) afflicting the banking sector in India. All earlier modes of restructuring such as Joint Lenders’ Forum (JLF) have been withdrawn. Instead, bankruptcy resolutions have been streamlined around the Insolvency and Bankruptcy Code 2016 (IBC), creating a process that inspires greater confidence for market participants. 


Simplifying the legal framework while delivering faster conflict resolutions will provide a significant fillip to infrastructure investment in India in the medium run. Greater contract enforcement and recovery of lender’s dues will be attractive for the long-term foreign lender. Long-term debt capital will be essential for India to truly create the much-needed infrastructure.


The first quarter saw the implementation of effective steps towards attracting long-term debt. In addition to better compliance, a quicker resolution of bankruptcies will allow capital that is stuck in bankrupt projects to be released for use in efficient, value-creating projects. An effective bankruptcy mechanism will also encourage better risk-taking from infrastructure companies. 


Streamlining of bankruptcy resolution procedures around the IBC is significant, since it leads to far greater clarity and much better demarcated boundaries regarding conflict resolutions.   


Demand for Indian Infrastructure Assets


The Toll-operate-Transfer (TOT) auction conducted by the National Highways Authority of India (NHAI) for 9 toll-based highways, that was won by Macquarie Group was a significant step towards expediting infrastructure creation in India. It further emphasized that foreign capital is keen to invest into well run infrastructure assets in India. This bodes well for infrastructure creation in India, since this shows that foreign investment in India can be a infrastructure-driven story. In addition, the auction showed the government’s flexibility and intent to monetize existing assets to generate capital, with which new infrastructure assets will be created.      

Investing India: 3 Pillars of Speedy NPA Resolution, Infrastructure, and Land Bank Monetization

Land Monetization Strategies


Land bank monetization as a strategy has picked up momentum with the incumbent government. Land bank monetization solves the dual problem of providing land and financing for infrastructure. Headlines over this quarter suggest that Railways and Airports Authority of India (AAI) have begun the process of looking at land bank monetization as a viable financing strategy. 


Given that Railways and AAI own some of the largest land banks in the country, land bank monetization by them would go a long way in the creation of the much-needed infrastructure. Land bank monetization is a gradual process, however getting started is a positive development. It is essential that the process of land bank monetization is carried out effectively to truly build on the good work done so far.


Besides continuing the good work for the rest of 2018, it is important for the Indian infrastructure ecosystem to further facilitate the flow of long-term global capital into India. The aim moving forward should be to think about how investment vehicles such as Infrastructure Investment Trusts (the InvIT structure) can be used to attract more long-term foreign capital. India needs both investors with operational expertise who would bid for a TOT type project and financial investors who have the capital to finance infrastructure but not necessarily the operational bandwidth. Further clarity with regulations, faster licensing and approval systems and more efficient financial instruments will ensure that the remaining nine months of 2018 can be used to build on the good work.  


Originally Published in Zee Business