Banks to lend more to power projects; oil & gas may take a backseat

During FY11, bank financing for power and steel segments would continue, while the oil & gas segment will take a backseat, say bankers

FY10 witnessed bank finances going into power as well as the oil & gas segment. While the power sector would continue to attract more money in FY11, finances for the oil & gas segment are expected to slow down.

“Last year, we had done a lot of financing in power and the oil & gas sector. Finance for power will continue, but oil & gas will reduce. Steel is another sector that will witness major financing,” said Vishal Gupta, vice president for project advisory and structured finance, SBI Capital Markets Ltd (SBI Caps). SBI Caps is a major consortium leader in most of the projects across segments in India.

The focus of bank finance is likely to shift away from the oil & gas segment, as most of the projects in this segment have already achieved financial closure. Ergo, during FY11, not much activity in terms of financing in expected in the oil & gas segment.

“Finance in this segment will reduce because no new refineries are coming up. The Reliance group has already rolled out its refineries; HPCL Mittal Energy Ltd’s refinery at Bhatinda and the Bina Refinery Project have achieved financial closure. For FY11, there will not be a major bunch of deals coming up for financing. Every industry typically sees major orders coming up in every two to three years, it is a cyclical trend,” said Mr Gupta.

Echoing the same, Ramesh Kelkar, deputy general manager, large corporate, Union Bank of India, said, “With us, there is no proposal pending, as of now there are no new projects coming to us for financing.”

Mr Gupta also pointed out that there would be a thrust in the exploration segment for financing. “But it will be more focused on dollar financing, there will not be much to be done in rupee financing,” he added.

However, more investments are likely to go into the oil & gas segment during FY12 as oil companies approach the production stage. “Those oil companies which are right now in the find (exploration stage) stage will require a huge amount of finance to get into production. But this may not happen in FY11, it might happen the next year,” Mr Gupta said.

“Oil & gas exploration is still in the nascent stage in our country and the risk perception is high. The segment lacks the necessary boost required. There is also less clarity in the financial module. Lot of exploration is going to happen, so there is a scope for financing. In the exploration segment we will see some real action taking place in the next two to three years,” added Mr Kelkar.

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    Shadi Katyal

    1 decade ago

    Power is a necessity and we have shortage all round but if equal attention is not given to Oil and Gas resources what do we intend to run the power plants on Cow chips.
    Yesterday some one had an article that coal development will take 5 years and thus resources should be utilised some where else.
    Are we putting the horse before the car

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