The comptroller and auditor general (CAG) of India, in a latest report, has said Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) — the two main lenders of the sector under the Central government — did not conduct appropriate due diligence before disbursing loans to private power producers between FY14 and FY16.

With the rise of private

participation in power generation, REC and PFC loaned Rs 47,706.88 crore to independent power producers (IPPs) during the period. The private sector loan portfolio covers 17.2% and 15.5% of the entire loan portfolio of REC and PFC, respectively. “The experience of project promoters were assessed based on individual judgement and promoters who did not have relevant sector experience were found eligible for loans,” the CAG noted in its report tabled in the Parliament on Thursday.

Nine projects had to be restructured multiple times, resulting in rise of interest cost by Rs 13,312.78 crore in six loan cases. The laxity led to the creation of non performing assets (NPAs) of Rs 3,038.44 crore for three loan cases.

The CAG noted that there was a sharp rise in NPAs in IPPs for both REC and PFC between FY14-16. PFC recorded a gross NPA of Rs 7,519 crore and REC Rs 4,243.6 crore, accounting for 19.9% (from 4.3%) and 13.9% (from 2.3%) of the outstanding loans, respectively.

With the adoption of RBI restructuring norms in FY17, the gross NPA of PFC as on March 31 stood at Rs 30,702.21 crore, accounting for 12.5% of the company’s total outstanding loans. NPA loans include disbursements to units of Essar Power and Jal Power Corporation while restructured loan portfolio of the two lenders has business units of Lanco, GMR, Indiabulls and RattanIndia.