The country’s leading lender State Bank of India has asked the Reserve Bank of India to provide a short-term relief for the stress-hit power and metals industry by relaxing regulatory norms through a special dispensation.
In a letter to RBI governor Raghuram Rajan, SBI chairperson Arundhati Bhattacharya pointed out that power and metals firms have been hit by the recent deallocation of operational coal blocks as well as suspension of raw material linkages both due to court and government orders.
She said, therefore, the RBI should consider relaxing norms and allowing refinancing of project loans to such firms in such a way that they do not attract restructuring provisions.
Bhattacharya said in the letter that the power and metals industry has suffered due to the non-availability of raw materials such as iron ore, bauxite and coal. In this regard, she referred to the Supreme Court order in May on closure of mines and partial ban on mining in Goa and Karnataka as well as the government-imposed restrictions on iron ore and bauxite mines in Odisha and Jharkhand.
The SBI chief said the apex court order last month on deallocation of coal blocks (due to illegalities) hit coal production of 39 million tonnes per annum from 40 operational coal blocks and delayed production from another six blocks, forcing the power and metals industry (including those who had captive coal) to depend on imported coal that is about 2-3 times more expensive.
Seeking a short-term relief for firms in these two sectors, Bhattacharya requested the RBI to allow project loans to firms – hit by deallocation of operational coal blocks or suspension of raw material linkages – be allowed to refinance once by the existing lenders without attracting the attendant restructuring provisions so that the remaining tenor of the project loan is in line with the revised cash flows available for debt servicing.
She added that the 5/25 scheme (where banks are allowed to fix longer amortisation period for loans to projects in infrastructure and core industries sectors, say 25 years, based on the economic life or concession period of the project, with periodic refinancing, say every 5 years) should be allowed for existing projects in the power and metals industry to relieve stress.
“Such a step would enable loan repayments to be co-terminus with cashflows from the project and improve debt servicing capacity and viability of the operational projects,” she said, pitching for a short-term relief, adding that the problem of raw material would be resolved over the medium to long term.