A top official from the State Bank of India (SBI) has stated that infrastructure investment trusts (InvITs) should be included in the Insolvency and Bankruptcy Code. Ashwini Kumar Tewari, the managing director of SBI, emphasized the need for lenders to have the assurance that they can recover their dues from InvITs in case of a default. He mentioned that SBI is in contact with the Reserve Bank of India and the government to address this issue.
Clarification and Assurance for Lenders
Tewari explained that currently, the primary responsibility of an InvIT or a special purpose vehicle is towards the trust holders, and there are gaps that need to be filled. He highlighted the importance of clarifying the space and providing assurance to lenders that default proceedings will be similar to any other lending within the infrastructure sector. Tewari also mentioned that banks lack the power to change management at entities, which is a key feature under the Insolvency and Bankruptcy Code.
SBI’s Positive Outlook on InvITs
Tewari expressed SBI’s optimism about the InvITs space, as it reduces the long-term risk for the bank after a project is completed. Additionally, InvITs provide a steady flow of cash to pension funds and other investors. Tewari mentioned that the SBI has communicated its concerns to the Reserve Bank of India and emphasized the need for consortium arrangements for non-banking financial companies (NBFCs) instead of having a long list of lenders.
Importance of Resolving Issues for NBFCs
Tewari raised concerns about the number of relationships an NBFC maintains with multiple banks and the challenges it poses for follow-up and control mechanisms. He stated that if the NBFC sector is to sustain, this issue needs to be resolved. Tewari also advocated for similar regulation between banks and NBFCs, given that over half of the NBFC sector’s funding requirements are currently funded by banks.
Regulatory Scrutiny of the NBFC Sector
Tewari acknowledged the heightened regulatory scrutiny of the NBFC sector, which is a result of the stress faced by the sector after the IL&FS crisis in 2018-19. He welcomed the increased awareness and strength among NBFCs in southern India regarding internal audit, as it helps reduce instances of risks. Karthik Srinivasan, the group head for financial sector ratings at Icra, mentioned that the banking industry’s exposure to NBFCs is at an all-time high and emphasized that NBFCs with better credit quality will not face challenges in funding. However, Srinivasan also noted that there are pockets with asset quality issues, particularly in retail NBFCs that have been growing their riskier unsecured books at a faster pace than the overall growth in assets under management.