End of an era as ICICI bank closes project finance division

One of India’s oldest development finance institutions, ICICI Bank Ltd., which later evolved into a universal bank, decided to close its dedicated project finance vertical, a person with direct knowledge of the matter said. of the file, on condition of anonymity. All project finance proposals will now be evaluated by the Broad Business Loans division.

The decision, although coming at a time when demand for project finance is low, highlights the difficulties Indian lenders face when financing large infrastructure projects in India. At ICICI Bank, the project finance group has extensively processed loan proposals for sectors such as power, roads, ports and airports, manufacturing, mining, oil and gas.

This decision follows the bank’s decision to reduce large loan risks. The bank is also currently experiencing significantly lower demand for project finance, the person quoted above said.

The 30 to 40 employees who worked in this team were relocated to other departments. The bank’s corporate finance team, which manages loans to larger businesses, will now process all loan proposals for infrastructure projects directly. The bank will continue its policy of dialogue with well-rated companies for any future project financing, added the person quoted above.

The Cogencis news agency first reported on Tuesday that the bank had decided to abolish the project finance division. ICICI Bank did not comment on an email request sent on Tuesday.

End of the era of ICICI’s project funding

Although ICICI Bank’s decision is not surprising in the current environment, it closes a long chapter in the history of the financial institution.

“When we created the bank, project finance was the only activity we did, because ICICI was before that a development finance institution,” said N Vaghul, former president of ICICI Bank. “We used to get money from the government and extend it to businesses in need,” Vaghul recalls.

Given ICICI Bank’s historic strengths in project finance, it continued to dominate this lending segment even after its conversion to a universal bank.

ICICI Bank, along with State Bank of India, IDFC, and IDBI Bank, were among the largest infrastructure lenders until about 2013. Bank, took a hit. Risks arising from government policy and court decisions, as in the case of the allocation of coal blocks, have added to the pain.

As of 2015, banks saw their bad debts surge after the Reserve Bank of India carried out its asset quality review in October-December 2015. For ICICI Bank, gross non-performing loans reached over Rs 45 000 crore in September 2019, against Rs 15,242 crore. in March 2015. A large part of them came from the infrastructure sector.

“ICICI, IDBI and IFCI were the three pillars of project finance in India. ICICI’s decision not to fund large-scale projects should sound alarm bells for the nation, ”said Abizer Diwanji, head of financial services at EY.

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