Kotak Mahindra Bank is warming up to the infrastructure segment as lending to it is getting safer than it used to be, with a lot of the assets moving to safer and stronger hands.

“Our exposure used to be very low in infrastructure earlier, close to zero. We have raised it to 5-7 per cent of our credit exposure over a period…Multiple reasons for that. A lot of infra assets have moved to safer and stronger hands (project developers).

“And much of the stronger hands are also financial sponsors, who are stronger in terms of capital provision and governance. A lot of long-term capital has come in through financial sponsors,” KVS Manian, Wholetime Director (WTD), told businessline in an interaction.

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He noted that Infrastructure Investment Trust (InvITs) is a good development as it is a good vehicle for patient capital.

“As assets move to InvITs, they get refinanced through bonds as well as loans. So what seemed like a 15-year loan is no longer that. We are building our book in a systematic manner. It also gives us opportunities for debt capital markets business,” Manian said.

Cautious optimism

He observed that it may be useful to remember that the biggest mistakes by most banks in the past have been in the infrastructure sector. Most corporate banks have had a very tough time doing this business.

“We want to move forward, but cautiously because we don’t want to be caught on the wrong foot. We are more optimistic about the infrastructure financing business…but we will remain cautious,” Manian said.

To a question on the lending opportunities that could come his Bank’s way due to the Government announcing an outlay of ₹10 lakh crore for infrastructure development in FY24, the Kotak Bank WTD said this will come with a lag.

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“When ₹10 lakh crore goes into some large infra projects, obviously, the contractors who execute them will need working capital, capital equipment, and so on. So a trickle-down effect will happen. But obviously, it will happen with a lag.

“That apart, the ₹10 lakh crore itself will give rise to some opportunities in corporate and infrastructure lending. We are not a very large player in the infrastructure lending business. But we do some in a small measure,’ Manian said.

The Bank prefers late stage financing or refinancing than early stage financing.

“Early stage has the highest risk and requires a far deeper understanding of the sector. It’s okay to do infrastructure financing if you have very deep understanding of that sector and the associated risks. Early stages require even deeper understanding of the full dynamics.

“If an infra asset is operational and refinancing is required, at least we know the operational cash flows, and execution risk is mitigated to that extent,’ explained the Kotak Bank WTD.

Manian emphasised that there is a lot of opportunity around late stage financing before the Bank can jump into early stage financing.

“While we want to do infrastructure, our initial efforts will be to do more refinancing/ late stage financing, and with good sponsors and as we build our capabilities, we will graduate to early stage financing,” he said.

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