To reduce the quantum of bad loans in steel, power and shipping sectors, the finance ministry on Monday asked PSUs such as NTPC, Steel Authority of India and Cochin Shipyard to examine taking over some stressed projects in their respective sectors, in coordination with the lender banks. This proposal was discussed at a meeting chaired by finance minister Arun Jaitley and attended by senior officials from finance, steel, shipping and power ministries as well as Prime Minister’s Office.
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“Today’s agenda was whether in some cases we can also involve the management team of certain established and successful PSUs in certain sectors to operate, at least in the interim, some of the plants. This will necessarily involve the banks invoking their powers under the contract, converting a part of their debt into equity, taking control of those units and appointing management team (of) established people of either current or retired/former representatives who have a great experience of those sectors,” Jaitley said after the meeting.
The stressed assets (gross NPA and restructured loans) of PSU banks rose from Rs 7.46 lakh crore (14.62 per cent of gross advances) as on March 2016 to Rs 7.83 lakh crore (15.74 per cent) as on June 2016. Bulk of the stressed loans are in the infrastructure sectors such as power, steel and shipping. Steel sector companies is the most leveraged, owing around Rs 3 lakh crore to the banking sector. “The concerned secretaries (of ministries) have been asked to coordinate with the banks and the concerned PSU heads,” he said.
NTPC chairman Gurdeep Singh, Cochin Shipyard chairman Madhu S Nair and SAIL chairman PK Singh took part in the meeting. The banking industry was represented by Indian Banks’ Association chairman Rajeev Rishi (chairman of Central Bank), SBI chairman Arundhati Bhattacharya and ICICI Bank managing director Chanda Kochhar.
Banks have earlier taken recourse to the Strategic Debt Restructuring (SDR) scheme, wherein a consortium of lenders converts a part of their loan in an ailing company into equity, with the consortium owning at least 51 per cent stake. Banks have earlier invoked the SDR scheme for companies including Electrosteel Steels, Monnet Ispat, VISA Steel, among others.
The SDR scheme provides banks significant relaxation from the RBI rules for 18 months. Loans restructured under the scheme are not treated as non-performing assets (NPAs) and banks have to make low provisions of 5 per cent in most cases.
“Bankers have been facing problems in managing the companies for which debts were converted into equity. Now a new plan is being worked out wherein PSU with expertise in these three sectors help banks in operating these defaulting companies or some of their units,” a finance ministry official present in the meeting said.
Cash-rich PSUs taking over stressed projects, however, would involve complex negotiations on how much haircut banks are willing to take and how to deal with the accumulated liabilities of such firms.
The Centre has taken a series of measures to reduce the proportion of stressed assets. “The government has already taken a series of steps. In some cases, we already have seen exits in order to lower their (group) debts and make them more sustainable. The Oversight Committee is dealing with some cases which have now arisen on account of various steps that have been taken,” he said.
The meeting also deliberated as to what can be done in case of certain defaulters, whose assets have found no takers. “Today one of the legitimate problems is whenever some assets are put out, there are no takers so the takers will be created.” Jaitley had last week said that banks should enforce their right and recover dues in the larger interest of the economy.
“The problem of NPAs, which is of course the next big challenge as far as Indian economy is concerned, we are now coming to a stage when a lot of effective steps both legislative and in terms of policy have been taken,” he had said.
Banks now have to enforce their right in the larger interest of the economy because if money keeps lying and blocked with one particular section, then your capacity to lend to others itself is adversely impacted, Jaitley said.
“I think stage is now set for banks to take effective action in some cases so that people realise that indefinitely you cannot hold on public money because bank money also, at the end of day, is public money itself,” he had said.