Taking a bleak view of the rising non performing assets in the banking sector, the Economic Survey has suggested that promoters of projects need to put in more capital from their purse and has called for “excising” promoters from boards of companies going in for debt restructuring.
“Going forward, more attention will have to be paid to whether projects are adequately capitalised up front given the risks, and to whether distress resolution systems work effectively in recapitalising distressed assets and putting them back to work, while excising ineffective promoters from management and imposing losses on those who contracted to take the risk,” the Survey said.
Overall gross NPAs have gone up from 2.36 per cent of the total credit in March 2011 to 3.57 per cent in September 2012 and the number of cases referred to the corporate debt restructuring (CDR) cell going from 87 (approved amount Rs 39,311 crore) in 2011-12 to 112 (approved amount Rs 62,897 crore in the first 10 months of this fiscal).
Some major CDR cell cases this fiscal that have approved loans include — GTL Infrastructure (Rs 16,000 crore), Suzlon Energy (Rs 11,000 crore), Jindal Stainless (Rs 9,000 crore) and Bharati Shipyard (Rs 5,800 crore) among others.
There have been cases in recent past where banks and even the regulator asked the promoter to infuse sufficient capital in the company along with charting out a revival plan as a precondition for banks to be able to give it more leeway and restructure the loans again.
The infrastructure sector has been a major reason for the significant rise in NPAs but the increase in gross NPAs went up significantly for public sector banks, which typically are more exposed to distressed sectors.
While additional sources of funding for corporate requirements other than bank facility is often debated, the Survey touched upon the need for a well developed corporate bond market and highlighted issues that need to be addressed to develop the same in a bid to make it a source of long-term funding for corporates and also for infrastructure development.