HYDERABAD: Private investment cycle is beginning to turnaround, according to the RBI.The total project cost sanctioned by banks and financial institutions increased sharply from Rs86,607 crore in the first half of FY19 to Rs1.25 lakh crore in FY20, data compiled by RBI shows.
Similarly, capital expenditure raised via ECBs jumped from Rs39,833 crore to Rs61,833 crore, while FDI inflows (equity capital) shot up to Rs1.8 lakh crore in H1FY20 from Rs1.5 lakh crore in H1FY19.
While the investment cycle is poised to gain momentum in the short- to medium-term, its sustainability needs to be watched closely, the central bank noted in its latest study.
According to RBI, private placements, debt instruments like bonds and debentures, ECBs, FCCBs and FDI have assumed prominence as alternative sources of capex financing. Capex is the amount sanctioned in a given year for projects approved in the previous years. Total investments include capex and funding for pipeline projects.
In FY20, planned capex (based on the pipeline of projects) is poised to be high at about Rs1.2 lakh crore, marking a significant improvement over FY19’s Rs84,602 crore.
“The planned or envisaged capex from all sources based on the pipeline projects sanctioned in all preceding years point to a noticeable improvement in FY20,” the study noted. In all, companies invested Rs2.53 lakh crore across 988 projects in FY19 as against 955 projects aggregating Rs2.07 lakh crore in FY18. Of this, only 414 projects raised funds from banks and financial institutions involving Rs1.75 lakh crore, while 535 companies raised Rs76,515 crore through ECBs and FCCBs, followed by another 39 firms that raised Rs609 crore for their capex needs via domestic equity issues.
There were 40 large projects in size of Rs1,000-5,000 crore, with a combined share of about 41 per cent in the total project cost in FY19.
Of this, greenfield or new projects occupied the largest share of 76.9 per cent in the total cost of projects sanctioned by banks and financial institutions, followed by expansion and modernisation of existing projects constituting 19.7 per cent of the total project cost.
Industry-wise, infrastructure comprising power, telecom, ports and airports, roads, etc, saw a remarkable surge in the aggregate cost of projects sanctioned by banks and financial institutions. Out of five projects sanctioned in FY19, four were new and one for expansion and modernisation.
“The number of new mega projects sanctioned by banks and financial institutions has been small since FY12 in the aftermath of the global financial crisis. However, it’s noteworthy that projects, which were already announced and implemented prior to or around the crisis period, got higher financial capital from multiple sources to execute sanctioned investment plans,” RBI said.