In a bid to relieve the pressure caused by the enormous amounts of stressed assets in the infrastructure and other core sectors, the finance ministry has asked banks and financial institutions to explore practical ways to turn the viable projects among them around and set up a lenders’ committee for this purpose.
The committee, comprising representatives from banks and financial institutions (FIs) and technical experts, will be led by SB Nayar, chairman and managing director of the government-owned India Infrastructure Finance Company (IIFCL), official sources told FE. Top of the committee’s agenda will be to suggest solutions on a case-by-case basis to scores of troubled projects, each with a debt component of over R1,000 crore, the sources said.
The ministry’s initiative comes in the wake of the realisation that even after regulatory clearances have been given to about 200 projects worth R7 lakh crore by the project monitoring group in the Cabinet secretariat over the past year, financing issues and an onerous debt burden continue to cripple a large section of these projects.
Sources said the ministry has mandated that the lenders’ panel should consider only those projects that have exhausted all available resolution mechanisms under Reserve Bank of India guidelines including corporate debt restructuring (CDR) and corrective action plan (CAP) and where such mechanisms have not worked.
The panel, anchored by the department of financial services, has been asked to give such practical recommendations on a case-by-case basis that can easily be accepted and implemented by the lenders.
The lenders were told that in case of difficulties in implementation, they should revert to the panel as early as possible.
The sub-panels considering individual cases would have IIFCL as well as the top four banks/FIs in the respective consortium represented by officers at the level of CMD or executive director.
The measures being considered by the panel to revive these projects include additional funding, reduction of interest rate, change in management and selling/ writing off assets. Besides, it would also explore enhancing repayment period of loans, change in structure of repayment and conversion of debt into equity.
In the mid-year economic analysis report, the finance ministry has said that of the stalled projects worth Rs 18 lakh crore, 60% are in the infrastructure sector. The report added that given the over-indebtedness of the corporate sector with median debt-equity ratios at 70%, banks hit by non-performing assets have turned risk-averse and in many cases are unwilling to lend.
In a recent speech, RBI deputy governor R Gandhi had detailed the extent of damage that could happen to the profitability, liquidity and solvency of banks if timely recovery of such large amount of stressed assets does not materialise.
He said the gross non-performing assets (NPAs) to gross advances of scheduled commercial banks had increased from 3.4% (or Rs 1.84 lakh crore) as at end March 2013 to 4.1% (or Rs 2.51 lakh crore) as at end March 2014, while net NPAs during the same period increased from 1.7% to 2.2%.
Banks’ ratio of restructured assets to gross advances stood at 5.9% (or Rs 3.6 lakh crore) as of end March 2014 against 5.8% a year ago, Gandhi said, adding that “thus the total stressed assets, meaning the loans which are not being recovered despite having become due, amounted to around Rs 6 lakh crore as at the end of March 2014, as against total gross advances of Rs 61 lakh crore”.
Gandhi said these data should be seen in the light of the total capital and profits of the banks, adding that the total capital amounted to Rs 7.3 lakh crore as at end March 2014 while total profits in 2013-14 were Rs 72,200 crore.
Investments envisaged in “stalled” projects: Rs 18 lakh cr
Of this, infrastructure projects account for Rs 11 lakh cr
Over 200-odd projects cleared by the PMG worth Rs 7 lakh cr
Gross NPAs of banks (as on March 31, 2014) Rs 2.5 lakh cr
Rs 3.6 lakh cr
Total stressed assets
Rs 6.1 lakh cr
Infra, mining, aviation, iron & steel, textiles account for over half of stressed advances