Sidharth Rath, president, corporate banking (infrastructure business), Axis Bank, talks to Amritha Pillay on the challenges facing the infrastructure industry. This is the second part of a two-part series

Amritha Pillay (ML): The Planning Commission has an outlay of $500 billion worth of investments in the infrastructure space. What is your outlook on this planned investment?

Sidharth Rath (SR): The indications are that more or else, these investments are on track. We will see what comes up.

ML: ICICI Bank's private equity arm plans an infrastructure fund. Axis Bank, on the other hand, is trying to exit from its infrastructure PE fund. With such contradictory actions by two main private banks, what is your view on private equity investments in infrastructure?

SR: We plan to remain invested in it, and we are committed to the fund. We are not exiting from the fund; we are exiting only from the management side, with the thought process of how to make it more efficiently managed. In general, the opportunities are huge for private equity investments in the infrastructure space. In the next Five Year Plan, the government has planned another $1 trillion investment in infrastructure. Obviously, there is a huge demand for equity.

ML: Last month, the Insurance Regulatory and Development Authority (IRDA) has decided to allow insurance companies to invest in India Infrastructure Debt Fund bonds. To what extent will this facilitate more investments in infrastructure?

SR: Investments through insurance companies will definitely help bring in more liquidity and boost financing. Thus, infrastructure projects will have access to one more source (of funds), which would be a long-term one, as insurance companies will remain invested for a longer period of time.

ML: How financially viable do you think projects based on the PPP model are, especially those which are aimed more towards development and less promising on returns? Does the offered viability funding really make such projects attractive?

SR: The viability gap funding is given to make these projects financially viable. Only if it is viable, one appraises it and then the bank lends to the project. If it is not viable, then banks will demand a higher level of equity. This is how it is worked out. In certain projects, the developers bid for viability gap funding. When a developer is bidding, he bids keeping in mind the returns that he is expecting. In some projects, wherever there was a grant given, the projects have done decently well.

ML: Banks have already committed a large chunk to infrastructure. Another large chunk has been disbursed to telecom companies. The disbursements on the infrastructure front have not happened due to various project delays. Will there be liquidity issues once these disbursements start?

SR: (The) liquidity crunch should not be an issue. The disbursements will not happen at one instance, they will be phased out. Infrastructure projects have an implementation period of two to three years. Some of the larger power projects might take more time. The disbursements would not be bunched up like the telecom disbursements, which had to be completed within a particular time limit.