India’s InfrastructureNew Models of Financing

Business Economics BankingNovember 25, 2017

Dr. Shubhada Rao, Chief Economist

2

Infrastructure investment got scaled down in 12th FYP

Source: Deepak Parekh Report

3.94.4

3.5

1.1

2.6

2.2

5.0

7.0

5.7

0

1

2

3

4

5

6

7

8

10th FYP 11th FYP 12th FYP

Investment in Infrastructure (% of GDP)

Private

Public

Total

3

India’s investment ratio has declined in last 5yrs

Source: IMF

Country Investment Ratio (% of GDP, 2016)

US 19.7

UK 17.0

Brazil 17.5

Russia 25.3

Indonesia 34.3

China 44.2

South Africa 19.4

39.6

30.4

0

5

10

15

20

25

30

35

40

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

India's Investment Ratio (% of GDP)

4

Cross section of policy reforms gradually yielding outcomes

Institutional

•Goods & Services Tax

•Insolvency & Bankruptcy Code

•Monetary Policy Committee

•NITI Aayog

Macro

•Flexible Inflation Targeting Regime

•Revised FRBM Framework

•FDI liberalization•Fuel price

deregulation•Make in India,

Startup India, Skill India

Micro

•UDAY Scheme•PSU Bank

Recapitalization•Jan Dhan Yojana,

Suraksha BimaYojana

•MUDRA Bank•Smart Cities

Administrative

•Direct Benefits Transfer

•E-Biz Portals•E-Auction of coal

blocks•Keeping food

inflation under check

140

131 130

100

60

70

80

90

100

110

120

130

140

150

Jul-13 to Jun-14 Jul-14 to Jun-15 Jul-15 to Jun-16 Jul-16 to Jun-17

India's rank in World Bank's Ease of Doing Business Assessment

Improvementin Rank

Source: World Bank

Post Demonetization, Cash/GDP ratio has moderated from ~12% to ~10.5%

In Nov-17, Moody’s upgraded India’s long term foreign currency rating to Baa2 from Baa3

In sign of increased financialization, cashless means of transaction is rising at a healthy pace

Progress lacking in the area of land & labourreforms along with adequate job creation

5

India gaining policy stability and credibility

There has been a secular decline in policy uncertainty in India since 2013This is in sharp contrast to rise in policy uncertainty at a global level

0

50

100

150

200

250O

ct-0

4

Oct

-05

Oct

-06

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Oct

-13

Oct

-14

Oct

-15

Oct

-16

Oct

-17

Global IndiaEconomic Policy Uncertainty Index (12mma)

Rising Uncertainty

Source: Bloomberg

6

Lot of scope to improve quality of India’s infrastructure

Note: Lower rank is desirable

Global Competitiveness Ranking (WEF, 2017)

India’s Rank Top 3 Countries BRICS Median Rank

OverallInfrastructure

66 HK, Singapore, Netherlands

52

Transport 25 Singapore, UAE, HK

35

Roads 55 UAE, Singapore, Switzerland

64

Railways 28 Switzerland, Japan,HK

30

Port 47 Netherlands, Singapore, HK

66

Air 61 Singapore, HK, UAE

51

Electricity & Telephone

100 HK, Luxembourg, Switzerland

77

7

Public debt has risen since the Global Financial Crisis

Source: IMF

Government Debt/GDP Ratio (%) 2008 2016

Advanced Economies 33.9 46.8

US 73.6 107.1

Developing Economies 78.7 106.3

BRICS (Average) 37.9 47.9

8

Rules based fiscal policy to limit appetite for infra support

The FRBM version 2.0 recommendscodified rules on deficit and debtmanagement for both central and stategovernmentsIts is expected to be implemented fromFY19 onwards

9

Key challenges in Indian infrastructure

Inadequate Approvals

Sub-Optimal Risk Allocation

Inefficient Tender Processes

Funding of Cost Overruns

10

Stylized representation of few infra financing ideas

Infrastructure

Long Term Debt

Monetization

Pooled Finance

FX Risk Hedging

11

Case Study: A successful turnaround for the roads sector

HAM

Assured O&M

payouts

Cost inflation indexed

Cash Support –

40:60

Semi-annual

payments

Reduced funding riskReduced construction riskO&M risk partially mitigated

Compensating for delays

Relaxing Exit Norms

One time fund infusion by NHAI

Upfront land acquisition, clearances

Remedial Actions

12

Typical contractual structure of SPV in project finance

13

Few innovative ideas for infra financing

• Isolation of financial risk and legal protection• Lower funding cost; flexibility of getting listedSPV

• BoT• ToTConcession Models

• Joint Ventures• Equity and Debt Financing

Capital Contribution Models

• Stake sale and Refinancing; InvITs• Power generationMonetization

• Applicable for both public and private domains• Best for small ticket municipal projectsCrowdfunding

14

Thank You!

15

Appendix

16

Transport services have ~5% share in India’s GDP

0

1

2

3

4

5

6

FY12 FY13 FY14 FY15 FY16

Transport share in GDP (%)

Others

Road

Rail

Source: CEIC

17

Investment in rail infra to grow by 7% over next 5yrs

18

YES BANK LimitedRegistered & Corporate Office: Nehru Centre, 9th Floor, Discovery of India, Worli, Mumbai 400018Tel: + 91 22 6669 9000; Fax: + 91 22 6669 9018

Northern Regional Corporate Office: 48 Nyaya Marg, Chanakyapuri, New Delhi 110 021Tel: + 91 11 5556 9000; Fax: +91 11 5168 0144

BUSINESS ECONOMICS BANKING

Contacts

Name Designation Email Phone

Shubhada M. Rao Chief Economist shubhada.rao@yesbank.in (+91) 22 3372 9198

Vivek Kumar Senior Economist vivek.kumar1@yesbank.in (+91) 22 3372 9059

Yuvika Oberoi Economist yuvika.oberoi@yesbank.in (+91) 11 6656 9087

Prakriti Shukla Economist prakriti.shukla@yesbank.in (+91) 22 3372 9016

Gaura Sengupta Economist gaura.sengupta@yesbank.in (+91) 22 3372 9792

Sanket Tandon Economist sanket.tandon@yesbank.in (+91) 22 3372 9793

Swati Arora Economist swati.arora1@yesbank.in (+91) 11 6656 0594

Note: Data in this report has been sourced from CEIC, Bloomberg, GoI Budget Documents & Economic Survey, CGA, PPAC, IMD, RBI, IMF, and YES BANK Limited

19

DisclaimerIn the preparation of the material or information contained in this document, YES Bank Limited (“YES Bank”) has used information that is publicly available, including information developed in-house. Information gathered and material used in this document is believed to have been obtained from reliable sources. However, YES Bank makes no warranty, representation or undertaking whether expressed or implied, with respect that such information is being accurate, complete or up to date, nor does it assume any legal liability, whether direct or indirect or responsibility for the accuracy, completeness or usefulness of any information in this document.

The material or information in this document includes external data sources or references to third party, which are outside the realm or control of YES Bank. YES Bank takes no responsibility for the contents of those external data sources or such third party references. No third party will assume and direct or indirect liability, whose references have been provided in this document. It is the responsibility of the user or recipient of this document to make its/his/her own decisions or discretion about the accuracy, currency, reliability and correctness of information found in this document.

The opinion or expression made by YES Bank in this document, should not in any manner, be construed as a solicitation or endorsement of any offer for purchase or sale of any financial transaction, commodities, products of any financial instrument referred therein. All recipients of this document should carefully read, understand and investigate (either with or without professional advisors) into the risks arising out of or attached to such financial instrument or transaction or commodities or products before dealing or transacting in such financial instrument or transaction or commodities or products. All dealing or transaction entered upon by such recipients shall be entirely at their own risk and YES Bank shall not be responsible or liable for the same in any manner whatsoever.

We have included statements, opinions, recommendations in this document which contain words or phrases such as "will", "expect" "should" and similar expressions or variations of such expressions, that is or may be construed as “forward looking statements”. Actual results may differ materially and substantially from those suggested by such forward looking statements. Such difference may arise due to various risks or uncertainties associated with our expectations with respect to, but not limited to, exposure to market risks, general economic and political conditions in India and other countries globally, which have an impact on our services and / or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the industry. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated herein.

Neither YES Bank nor any of its officers, directors, personnel and employees shall be liable for any loss, claim, damage of whatsoever any nature, including but not limited to, direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material or the information therein, in any manner.

The investments discussed in this material may not be suitable for all investors. Any person subscribing to any product or financial instruments should do so on the basis of and after verifying the terms and conditions attached to such products or financial instruments, entirely at their own risk, costs and volition. Financial products and instruments are subject to market risks and yields may fluctuate depending on various factors affecting the capital or debt markets. Please note that past performance of financial products and instruments does not necessarily indicate the future prospects and performance thereof.

YES Bank or its officers, directors, personnel and employees, including persons involved in the preparation or issuance of this material may; (a) from time to time, have long or short positions in, and buy or sell the securities mentioned herein and/or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation in the financial instruments, products, commodities discussed herein or act as advisor or lender / borrower in respect of such securities, financial instruments, products, commodities or have other potential conflict of interest with respect to any recommendation and related information and opinions.

No part of this material may be duplicated or copied in whole or in part in any form and or redistributed without the prior written consent of YES Bank. Any reproduction, adaptation, distribution or dissemination of the information available in this document for commercial purpose or use is strictly prohibited unless prior written authorization is obtained from YES Bank.

This material is strictly confidential and privileged to the recipient. Use of the material or information contained in the document is restricted to the recipient only. If you are not the intended recipient or if this document has been sent to you in error, please email us or return this document to the sender. The contents of this document may be subject to change without any prior notice or intimation to the recipient.