With bad loans rising and big corporates, including the Reliance Group, GMR, Essar and Adani, rushing for debt bailouts, banks have told the Ministry of Finance, in their latest round of meeting, to change the existing strategy for the revival of investments and credit pick-up in the economy.
“After attending the third meeting convened by the ministry, we have realised that this kind of review of the overall situation is not achieving the desired results. Instead we have asked the ministry to hold project-specific meetings. That will help every one of us to know the real issues that have blocked the projects and find a solution for the revival of stressed assets,’’ said the managing director of a public sector bank.
While banks were earlier tackling stressed projects on a sector-wise basis, even restructured projects have slipped into non-performing assets (NPAs).
“We found this method was ineffective and did not produce any result. We are now taking up such stressed cases on project by project basis and trying to find solutions. We can immediately start with power and steel projects where a large investment has got stuck,” he said.
Despite a plethora of bailout schemes, including the strategic debt restructuring and 5/25 debt recast, five out of the top 10 private steel producing companies are under severe stress on account of delayed implementation of their projects due to land acquisition and environmental clearances. The RBI says Rs 53,000 crore loans of seven power
distribution companies (discoms) restructured by banks is likely to turn into non-performing assets.
Officials from banks, finance ministry, asset reconstruction firms and the RBI had different rounds of discussions on stressed projects. “We are now identifying problems specific to a project and trying to address them,” said an official of the Indian Banks Association. “It’s difficult to go by sector-wise now.”
A joint meeting of officials from the RBI, finance ministry and public sector banks in April had reviewed the status of 85 mega projects involving an investment of Rs 3.51 lakh crore. Data from the Ministry of Finance indicates that 299 mega projects involving an outlay of Rs 18.13 lakh crore still remain stalled with the Project Management Group (PMG) in the cabinet secretariat.
Credit growth remains constrained as Rs 480,000 crore of capital projects are still stuck and have by now lost their equity leading to very high leverage in infrastructure companies whose debt equity is currently at 3.2. “This is leading to high NPAs and restructured assets for banks that is at an all-time high requiring large recapitalisation,” said Janmejaya Sinha, chairman, Asia Pacific, Boston Consulting Group.
Sinha said one way is to address this issue head on as we have done the past with IDBI. “By creating a new Stressed asset stabilisation fund (SASF) where the restructured assets can parked against pledge of government securities that are held to maturity by the banks. The Government will provide cash to the SASF which will reinvest these in
government securities. These assets will mostly turn good because they have turned bad because of getting stuck. But the immediate priority of starting the credit cycle can be achieved,” Sinha said.