Infrastructure lending

India has a huge unmet need for infrastructure investment, which the government has estimated at around Rs 43 trillion ($660 billion) over the next five years. Close to 70% of this amount should go to power, roads and urban infrastructure. But where will the money come from? Globally, infrastructure is typically financed by institutional investors after matching long-term liabilities and risk-return expectation.

In India, however, infrastructure investment is mostly undertaken by public sector banks, which issue long-term funding to infrastructure projects on the back of deposits that are short-term in nature. This has led to asset/liability mismatch risks for Indian banks. Infrastructure accounts for almost 15% of total non-food credit extended by the Indian banks. In value terms, infrastructure lending has more than doubled from $63 billion in 2010 to $140 billion in 2014, but in percentage terms it has been flat... —