Banking consortium says it has exhausted loan limits; government may look for bridge loans

Concerns are mounting for the Maharashtra government after a consortium of leading public and private banks recently conveyed its inability to extend more credit for major infrastructure projects, especially road and highway works. The consortium of five to six banks, headed by the State Bank of India (SBI), has conveyed to the government that they have nearly exhausted their loan limits and credit cannot be extended to big-ticket projects until the government itself gives a guarantee or does so through the Centre.

According to government sources, there is no alternative but to look for temporary ‘bridge loans’ on its own for the time being to meet an immediate capital expenditure on the lines of ₹4,000 crore extended to the Mumbai-Nagpur Communication Expressway.

Maharashtra aims to complete construction of nearly 30,000 km of roads by the end of July 2020 under the Mukhyamantri Gram Sadak Yojna. If the banks do not extend credit, much of these works could come under a cloud, said senior officials. “We have reviewed the situation with Chief Secretary Ajoy Mehta, and are trying to manage the crisis for now. For now, it only threatens the road works since those have a greater exposure to bank credit, but we don’t want it to spread to other projects,” said a senior bureaucrat.

Last week, the government called an emergency meeting to clear a ₹4,000-crore ‘bridge loan’ for the Mumbai-Nagpur Communication Expressway. The State Cabinet, while clearing the proposal, said the 700-km highway will cost ₹55,000 with nearly ₹28,000 crore to be raised from private and public sector banks. The Cabinet decided to clear the proposal to extend a bank guarantee for the Maharashtra State Road Development Corporation (MSRDC), the implementing agency, to raise the bridge loan of ₹4,000 crore. The Cabinet had clarified the sanctioning of loans was taking longer and MSRDC needed money urgently to continue work on the highway. However, sources said the emergency meeting was called after banks refused further extension of credit limits unless the financial closure was arrived at for the previously pending loans.

“This is surely a direct result of, as they (banks) have told us, the crisis in the banking sector following mess created by the Infrastructure Leasing & Financial Services Limited scam. We didn't have a choice but to bail MSRDC out. This is likely to hit all road projects,” said the bureaucrat.

MSRDC needs to pay ₹1,200 crore to the contractors every day for work on the Mumbai-Nagpur highway. The arrangement with banks is only to pay the interest on loans till a road is complete. Once the project is over, MSRDC will repay the banks through toll. The super expressway, which is scheduled to be completed in 2021, will cut the travel time between Mumbai and Nagpur to less than nine hours. With motorists expected to pay over ₹1,200 as toll for a one-way journey, it will be one of the most expensive roads in the country.