CII mulls regular rating for construction cos

NEW DELHI: In a bid to bring more funds to construction sector, Confederation of Indian Industries (CII) has mooted the idea of a ''specialised financial institution'', even as it felt the need for regular credit rating of entities for inflow of more funds from banks and financial institutions.
Seeking specialised financial institutions, CII said in a study, "these institutions can formulate proper lending and unified eligibility norms for the borrowers from construction sector, which can be followed by other institutions."
Although interest rates on housing loans are on a falling spree, many commercial lending institutions are reluctant to extend loans to the commercial construction sector in view of mushrooming firms and inadequate rating in the sector.
For overcoming this bottleneck, it said construction sector would have to be corporatised and adequately rated by credit agencies like ICRA and Crisil, for building confidence to provide comfort to banks and FIs to lend to industry.
It is to be noted that both ICRA and Crisil had tied up with CIDC and Naredco for rating the construction companies as part of efforts to ascertain the standing of these firms in the wake of mushrooming of such entities.
The study said regular rating would ensure adherence to proper accounting norms, timely project completion enabling FIs and banks to monitor the end use of funds.
It also stressed the need for insurance products which could mitigate many risks providing comfort to FIs and banks.
Finding corporatisation level in construction industry to be ''very low'' compared to manufacturing sector, CII study said, "regular credit rating would ensure credit worthiness."
Highlighting the global prospects for the industry, it referred to statistics of Engineering News Records of US which ranked India''s construction industry at 12th position with 1.75 per cent share in the $3.4 trillion global market.
The spending capacity of the sector stood at $603 billion, constituting 12.28 per cent of GDP in 2000.
It pointed out construction sector accounts for five per cent of GDP, 38 per cent of gross domestic investment and employs 32 million people.
It also favoured introduction of innovative ideas for the sector''s growth and referred to National Highway Development Authority''s exclusive idea of having a mutual fund scheme to fund highway projects.
"Such a fund will guarantee 12-15 per cent return on seed capital contributed by financial institutions," it added.
The exclusive sector specific mutual fund could also be leverage in a flexible manner for funding highway projects in form of equity as well as debt, it added.
It might be recalled that Association of Mutual Funds of India (AMFI) had been pitching hard for real estate mutual fund, considering the potential in the sector with the risks adequately covered by tangible assets.
The study called for removal of credit limit for entities and said, "bank guarantees given by FIs and private sector banks should be freely acceptable by the clients".
CII sought raising mobilization and equipment advance by 10-20 per cent to encourage better working conditions and use of modern equipment.