The real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) can help raise close to Rs 50,000 crore in the near-term, given the interest shown by certain players in the infra and real estate space, according to a report.
This amount can be utilised either for repayment of debt from banks/ non-banking financial companies (NBFCs)/financial institutions (FIs) or as a consideration to the existing sponsor for dilution of stake or both, according to the study titled 'Building a new India', conducted by Assocham jointly with global research firm Crisil.
This will result in monetisation of sponsors investment in long gestation projects or result in release of loan funds for banks to fund other infrastructure projects, the report said.
Both REITs and InvITs are vehicles created to primarily invest in revenue-generating real estate/infrastructure assets.
The study estimated that public sector banks need equity of Rs 1.7 lakh crore by March 2019 -- a tall order -- considering that banks have so far contributed to nearly half of the debt funding needed in the infrastructure space.
But a sharp fall in profitability has reduced capital generation from internal accrual of banks while weak performance has diminished their ability to raise capital from external sources, the study said.
These constraints would necessitate a large part of infrastructure needs to be met from the corporate bond market, it said.
The study suggested that the ideal mode of financing infrastructure projects is for banks to focus on funding up to the pre-commissioning stage of projects.
After the project is commissioned and stable, banks must refinance the debt through bonds to long-term investors, as such refinancing will free up considerable funds for banks and enable their redeployment in new projects.
The report also highlighted that credit enhancement would be the key to making corporate bonds attractive to investors.
The study suggested looking at innovative channels like green bonds for financing government's ambitious target of 160 giga watt (GW) solar and wind capacity by 2022 with investments worth about Rs 8 lakh crore, as banking channel alone would not be able to support such huge requirements.
The study also highlighted the need to liberalise investment norms for PFs and insurance companies and allow them greater flexibility in investments in terms of scope, which will help channel more funds for the infrastructure sector.