In a strong message to corporate loan defaulters, the finance ministry on Monday asked PSUs such as NTPC, Steel Authority of India (SAIL) and Cochin Shipyard to explore taking over some stressed projects in their respective sectors as current promoters are lax or unable to repay debt.
The Reserve Bank of India has been stressing on improving operational efficiency of companies whose loan accounts have gone sticky through induction of new owners or managers.
After a meeting with top bankers and government officials here, finance minister Arun Jaitley said: “The agenda for today’s meeting was whether in some cases, we can also have management team of successful PSUs in certain sectors to operate, at least in the interim, some of the plants.”
FE had reported earlier the government’s move to prod large PSUs with ample cash reserves and surpluses to pick up equity and manage 25,000 MW private power projects languishing for want of power purchase agreements with discoms.
The government’s move would involve banks invoking their powers under loan contracts to convert some part of debt into equity to take over management control from the current owners. Banks have not been able to find alternative promoters under the tools provided by RBI. Once the banks take over the stranded projects, a new management team could be put in place by roping in retired officers of PSUs with relevant expertise, Jaitley said.
Besides officials of the finance ministry and the prime minister’s office, the meeting on measures to resolve stressed assets in these three sectors was also attended by power secretary PK Pujari, shipping secretary Rajive Kumar and steel secretary Aruna Sharma.
NTPC chairman Gurdeep Singh, Cochin Shipyard chairman Madhu S. Nair and SAIL chairman PK Singh also took part in the meeting.
The banking industry was represented by Indian Banks’ Association chairman Rajeev Rishi (chairman of Central Bank of India), SBI chairman Arundhati Bhattacharya and ICICI Bank managing director Chanda Kochhar.
The stressed assets (gross NPA and restructured loans) of public sector banks rose from R7.46 lakh crore (14.62% of gross advances) as on March 2016 to R7.83 lakh crore (15.74%) as on June 2016.
Bulk of the stressed loans are in the infrastructure sectors such as power, steel and shipping. Dwelling on resolution of non-performing assets, RBI had said: “Creative search for new management teams, including the possible use of public sector firms or private sector agents, is necessary, as are well-structured performance incentives such as bonuses for meeting cash flow/ profit benchmarks and stock options.”
“The administrative ministries will now discuss with PSUs under them to take over such projects as the government is of the view that NPA resolution under current managements looks bleak,” a senior official who attended the meeting told FE. Banks have become very cautious in lending to sectors that have been worst affected by the surge in NPAs in the past few years.
It is estimated that loans of about R1 lakh crore to the power generation firms are under stress. In the power sector, the country added an average of 20,000 MW annually to its thermal power capacity over the last five years. But lower-than-projected growth in demand, fuel shortage and the inability of debt-laden power distribution companies to enter into new long-term power purchase agreements have left a sizeable portion of these new capacities stranded.
According to an estimate, a total of 25,000 MW capacity — commissioned or under-construction — is lying idle for want of buyers or assured fuel supply agreements. Tenders for just 11,000 MW have been floated by the states since 2011 for new PPAs.