The Reserve Bank of India’s 5/25 scheme has not seen a single beneficiary since it was launched in July last year because bankers fear they will be unable to protect the net present value (NPV) of loans refinanced. The scheme relates to exposure to infrastructure and core sector projects, which have achieved commercial operation date (COD).
IDBI Bank executive director RK Bansal said that protecting the NPV requires that interest rates on the loans be raised as the loan tenure is lengthened to 25 years. If the bank does not raise the interest rate, the loss on account of this has to be provided for by the bank.
Also, firms looking for a rejigging of the loan must have zero default when they receive the refinance. The NPV is discounted at the rate of government securities plus net interest margins.
The 5:25 scheme enables banks to refinance long-term project infrastructure and core industry loans every five years so that both the borrower’s and lender’s interests are protected.
Infrastructure companies that are the intended beneficiaries of the scheme remain are under high levels of stress; but many of them are unable to access the scheme as it caters to projects that have COD. Bankers say many infrastructure companies have projects that have not attained COD and they would want 5/25 to be extended to these projects as well. On April 28, Hasmukh Adhia, secretary of department of financial services, had said that 85 infrastructure projects with a loan burden of R3.5 lakh crore are stressed due to delay in approvals, land acquisition problems, delay in finalisation of power project agreements, no or less availability of fuel to power projects and coal linkage issues.
P Srinivas, CMD, United Bank of India, said small infrastructure players are unable to take advantage of the scheme as it is only applicable to those projects in which banks have an exposure of larger than R500 crore. Also, bankers are worried that by raising interest rates as part of the refinancing scheme, the company will be further burdened with higher finance costs, thus making recovery that much more difficult, he added.
Bankers note that a large majority of the companies that are seeking refinancing under 5/25 are from the steel and power sectors. FE had earlier reported that several companies, including Essar Steel, Bhushan Steel, Jaypee Infratech and two subsidiaries of Adani Power – Adani Power Maharashtra and Adani Power Rajasthan, are seeking refinancing under the 5:25 scheme. However, a report by ratings agency Crisil notes that about R80,000 crore billion of stressed loans could be structured under the 5/25 scheme during 2015-16.
Pawan Agrawal, chief analytical officer, Crisil Ratings, said, ‘‘Going forward, the latitude now afforded to flexibly structure project loans (under 5/25 scheme) will enable lower slippages from large exposures. However, it can partially mask asset-quality pressures as reported NPAs may not be a true reflection of the extent of stress in banks.’’
The hurdles
* Banks fear they will be unable to protect the net present value of loans refinanced
* Many infrastructure companies are unable to access the scheme as it caters to projects that have commercial operation date
* Firms looking for a rejigging of the loan must have zero default when they receive the refinance
* Small infra players are unable to take advantage of the scheme as it is only applicable to those projects in which banks have an exposure of more than R500 cr’
For Updates Check Banking News; follow us on Facebook and Twitter