Funding for Indian power projects to slow down

Fitch says this is caused by lending constraints laid down by the Reserve Bank of India.

Despite the sustained gap between power demand and supply in India, funding for the country's power projects is likely to continue to slow.

Fitch says impending lending constraints, in the form of regulatory ceilings on individual/group lending laid down by the Reserve Bank of India and the prudential sector exposure norms, suggest the amount of additional debt banks can supply to new power projects may be limited. Commercial banks and certain specialised financial institutions have traditionally been the main source of funding for power projects.

Further, heightened risk awareness of power projects, fuelled by environmental activism, fuel supply constraints, falling merchant power prices, land acquisition problems and the weakening credit quality of state electricity boards, is also contributing to the slower pace of funding.

These sector-specific risks, combined with a rising interest rate regime, tightening bank exposure limits, and the slowing down of equity funding, will further negatively affect the availability of funds to the power sector in the short- to medium-term. The agency also expects these issues to increase the lead times needed to achieve financial closure on power projects.