The infrastructure sector is one of the key sectors for India to achieve higher economic growth rates and requires major investments into projects to push the growth rates higher. The infrastructure sector requires long-term and non-recourse financing, which is inherently risky in nature due to higher credit costs, high risk of delay and failure of projects. In the post 1990s period, this challenging task fell at the doors of the commercial banks due to the changing economic policies of the country with the reduced role of the existing Development Finance Institutions (DFIs). Over a period of the past couple of decades, this resulted in bank credit turning into a high level of non-performing assets (NPAs). The NPA crisis that the banks have been going through has been much debated and discussed, unless resolved soon, can have serious consequences for the financial system. A large chunk of the NPAs are observed to be from the infrastructure sector. On the other hand, the large infrastructure projects also create socio-environmental problems like displacement, land acquisition, centralised decision-making, and ecological losses among many others.

The recently released RBI’s Financial Stability Report in July 2021 has projected that the non-performing assets of banks could rise from around 7.48 per cent as of the end of March this year to 9.8 per cent of total assets by March 2022 under a baseline scenario and to 11.22 per cent under a severe stress scenario. The projections given in the July report are much less pessimistic than the report released in January, in which the RBI had said that bad loans could double in a severely stressed scenario and can go up to 14.8 percent. This is despite the steady write-offs by banks to keep their books clean.

Read the full report here: Note on DFI- Gaurav Dwivedi

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