Political uncertainty associated with an election year and an overall dip in the economy have made Corporate India reluctant to launch any greenfield projects, resulting in drying up of credit demand from industries. Year-on-year growth in credit to large corporates in February this year slowed to 12.2% compared with 18.9% a year ago, data from the Reserve Bank of India (RBI) show.

This phenomenon has hurt banks and private sector banks such as ICICI Bank and Axis Bank have repeatedly expressed their discomfiture on the dismal investment climate. Most of these banks are pushing retail credit to boost credit growth.

“We have to get to the core of the issue. Why is there no risk appetite in the system? Everybody says India is a great opportunity story, but why’s there no appetite? Because our decision-making is in a state of flux — there’s lack of clarity in policy-making and implementation,” said Shikha Sharma, MD& CEO of Axis Bank. “There’s a question of cost of capital if the equity capital market is not doing well, and if the cost of debt is high, then you have uncertainty on the investment side and high-cost of funding on the borrowing side,” she added.

Chanda Kochhar, the head of the largest private sector bank in the country ICICI Bank, agreed that there’s hardly any demand to set up new projects. “On the corporate side, we expect growth from two fronts: demand for working capital loans and refinance of higher-cost debt with low-cost funding. But there’s no real application on setting up of new projects,” she said.

In fact, large infrastructure companies such as LancoHCC and Gammon India are grappling with debt and have restructured them to avoid loan default. The country’s largest engineering major Larsen & Toubro is also expected to trim its Rs 1.7-lakh crore order book by about 10% when it announces earnings for 2013-14 as it is hobbled by lack of approvals, aggressive bidding and other constraints that have frozen project execution by its customers, mainly in the roads, minerals and metals sectors.

This will be the second year in a row that L&T will proactively write off its orders. Last year, it had deducted orders worth Rs 17,000 crore, admitting that orders worth Rs 9,000 crore may be written off in the construction business alone this year. Analysts have also warned that L&T may consider eliminating jobs worth Rs 10,000-15,000 crore.

“We assess the health of our orders at regular intervals, and will identify projects that have not moved or are potentially not going to start any time soon, and if conditions warrant, we will not shy away from taking these away from our order book,” chief financial officer R Shankar Raman told ET. The CFO said each of the businesses is in the process of reviewing orders and it was too early to quantify the magnitude of orders that may be written off. In January, he had said almost 9% of its order book was in the slow lane.

The government constituted the Cabinet Committee on Investment (CCI) on January 2, 2013, to address such problems: stalled infrastructure projects. The panel was set up to identify projects worth over Rs 1,000 crore that were facing regulatory or environmental delays.