An infrastructure company, Mega-Build Corp, is seeking a Term Loan of 2,000 crore rupees for a highway project under the Hybrid Annuity Model (HAM). The bank is acting as the Lead Bank in a consortium of 5 lenders. The company has a Debt-Equity ratio of 4:1, while the DSCR is projected at a healthy 1.8x. During appraisal, the bank discovers that the company has not yet obtained the Environmental Clearance for a crucial 10 km stretch of the highway. Evaluate the primary Risk and recommended mitigation measure in this scenario.

Question

Accepted Answer

The lack of environmental clearance creates a Project Execution Risk which can lead to cost overruns; the bank should include a Conditions Precedent clause for disbursement.

Answer

In a consortium, the Lead Bank's appraisal is final, and environmental clearances are irrelevant to project cash flows.

Answer

The DSCR of 1.8x compensates for the high Debt-Equity ratio, and the share pledge mitigates the environmental risk.

Answer

The loan should be rejected solely based on the promoter's ED investigation as it violates Know Your Customer (KYC) risk norms.

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