NHAI to offer roads as collateral, in talks with SBI to fund projects

National Highways Authority of India
The National Highways Authority of India (NHAI) is expected to raise money by keeping its assets as collateral. The agency is in final stages of discussion with State Bank of India (SBI) to raise funds for its future projects under this new mode.

According to the terms of the agreement, SBI will lend the NHAI 80 per cent of the project value; the rest of the money will be arranged by the highways authority. The loan would be repaid over at least 15 years; the money to repay the loan will be earned through toll revenue from securitised highways.

“The repayment of the loan will be through the toll revenue earned by the authority from the same project,” said a government official aware of the development. This new method has been named “securitisation model”.

The model will work like a housing loan. Banks usually approve loans worth 80 per cent of the property value; the buyer arranges the remaining 20 per cent. The buyer repays the money over a stipulated period.

“Only SBI has agreed in-principle for the securitisation model. More banks are expected to adopt it in the future,” the official added.

The new loan agreement is being negotiated in addition to what the highways authority has already taken from the country’s largest bank.

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Last year, the NHAI signed a credit line of Rs 25,000 crore with SBI for 10 years with a three-year moratorium on repayments. This loan is unsecured. There is no principal repayment liability for the initial three years. After three years, the repayment would be done in 14 equal half-yearly instalments. Life Insurance Corporation of India (LIC) has also offered a credit line of Rs 25,000 crore to the NHAI for funding highway projects.

The funds are expected to be raised over 30 years and the interest rate will be reset every 10 years. The government wants longer tenure loans for infrastructure projects. The NHAI borrowed Rs 20,000 crore from the government’s National Small Savings Fund (NSSF) last year. It is now looking to double the amount in 2019-20 (FY20). The NSSF loan is part of the NHAI’s overall borrowing plan of Rs 75,000 crore for FY20. Besides fund raising, the government sanctioned Rs 36,691 crore for THE NHAI.

In 2018-19, the NHAI resorted to a mix of bank debt, toll revenue, and a road-monetisation scheme to raise Rs 62,000 crore. Though the government allocation for the NHAI has risen in the past couple of years, the authority had to increase internal and extra budgetary resource generation.

Financial stress of the NHAI has become a concern, with the Prime Minister’s Office (PMO) recently stepping in with its suggestions. The PMO asked the Ministry of Road Transport and Highways (parent ministry of the NHAI) to improve its operational performance.

The PMO also suggested that the NHAI monetise its road asset base through the toll-operate-transfer (TOT) auctions or through an infrastructure investment trust (InViT). It asked the NHAI to bid out new projects under the build-operate-transfer (BOT) model where the government’s capital commitment is minimal.

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