Editorial: Unlocking bank funds

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SummaryREC has taken the right approach to recover money

Given how large amounts of bank funds are locked up in incomplete projects, simply because the promoters haven’t been able to take them forward, Rural Electrification Corporation’s (REC) attempt to try and take over a half-finished power plant and turn it into a productive asset, makes sense. The REC management believes it can complete the Abhijeet Group’s 1,080 MW unit in Jharkhand by paying the equipment vendors directly—in this case BHEL—and then roping in NTPC to run the plant. While the management is yet to tie up the loose ends, logically NTPC should not have any objection to operating the unit. Should the lender be able to pull off the acquisition, it would probably be a first of its kind. And while the promoters—the Abhijeet Group—might not be happy with such an outcome there can be no justification for leaving expensive capital locked up in incomplete projects at a time when there’s a shortage of capacity.

Indeed, given how so many managements are lining up before banks asking for a rescheduling of their outstandings on more lenient terms—the cumulative amount restructured is nudging R2.75 lakh crore and around R20,000 crore is recast every quarter on average—banks need to ask themselves whether they’re throwing good money after bad. While it may take some doing, they need to stretch themselves to look for better options given that the slippages for restructured loans can also be high. Unless the promoter is committed and appears competent, banks might just be better off doing what REC proposes—taking over the project and looking for someone to run the operations. Alternately, they should sell the company to the highest bidder. To be sure, while these options might sound simple, there’s no doubt they will be hard to implement; finding buyers for assets or companies can be a tall task. But, giving to promoters, most of whom have little skin in the game, is taking the easy way out. Ideally, the government should make it easier for lenders to recover their investments but the debt recovery tribunals aren’t the most efficient of mechanisms. REC’s attitude is the right one and with a bit of luck it should be able to have the plant up and running so it can recover its dues from the electricity generated.

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