The government has admitted that stressed assets have become a drag for the infrastructure sector with non-recovery of loans from the sector hitting completion of ongoing projects and investment in greenfield projects.
On Tuesday, while replying to a question on bad loans in Parliament, Union Minister of State for Finance Jayant Sinha said the prolonged slowdown of the economy continues to impact asset quality and it has affected infrastructure industry predominately and hence non-recovery of loans of the banks. Earlier this year, raising a red flag against excessive lending to the infrastructure sector, Reserve Bank Governor Raghuram Rajan had warned that the push to finance infrastructure should not override financial stability.
“The nation has enormous financing needs in infrastructure, and far too many of our banks already have too much exposure. Big corporate infrastructure players have also taken too much debt. Going forward, we need to develop new sources of risk capital so that our infrastructure needs can be financed with moderate amount of debt, even as we help the system deleverage,” Rajan said at a conference to mark the 80th foundation day of the RBI.
Consider these figures: The RBI recently said the real estate and housing sector now accounts for 13-14 per cent of the banks’ exposure. When infrastructure loans are included, the total exposure rises to 25 per cent of total loans. While exposure to the real estate sector has gone up from Rs 60,000 crore in 2007-08 to Rs 1,54,000 crore now and housing exposure from Rs 2,60,000 crore to Rs 5,40,000 crore, infrastructure exposure has more than doubled to Rs 8,40,000 crore. Some of the infra loans extended by banks in the last couple of years have already become stressed assets and even non-performing assets.
Burdened by huge exposure to the infrastructure sector, banks have already cut down their lending to the sector. Infrastructure loans grew by 8.3 per cent largely in October 2015 driven by the power segment (10.6 per cent as against 16.7 per cent last year) sector. Figures compiled by the Ministry of Finance in March 2015 indicate that 299 mega projects, mostly in the infrastructure segment, involving an outlay of Rs 18.13 lakh crore remained stalled with the Project Management Group (PMG) in the Cabinet Secretariat.
According to the Corporate Debt Restructuring (CDR) Cell of banks, lenders are now restructuring loans worth Rs 89,132 crore of 47 infrastructure, construction and power companies. Of this, Rs 50,779 crore is accounted by 21 core infrastructure projects. “Some of these restructured loans have failed again. These loans will be classified as NPAs,” said an official of a public sector bank.
Banks and corporates were using the CDR window for bailout packages to mask non-performing assets (NPAs) till April this year. Companies have now started approaching banks for bailouts under the 5/25 scheme as the RBI has already closed the CDR window from April 1 this year.
Rating agency Crisil has cautioned that around Rs 80,000 crore of stressed loans which could be structured under the 5/25 scheme could mask the asset-quality pressures and NPAs to be reported by banks may not gove a clear picture about their stress levels. The latest RBI guidelines allow banks to stretch the repayment schedule of infrastructure companies to 25 years with the option of refinancing the loan at the end of every five years.
“Infrastructure companies have already queued up before lenders to restructure loans worth over Rs 50,000 crore under the 5/25 scheme. If you go through the scheme it’s very clear that it’s tailor-made for evergreening of problem infra loan accounts. It’s surprising that the RBI has agreed for such a scheme,” said a banking source.
Big lenders and companies have now started using the 5/25 scheme to prevent their exposure from becoming NPAs.
Similarly, the system of Joint Lenders Forum (JLF) has become a convenient tool for debt recast in place of the CDR.
When an account is reported to the Central Repository of Information on Large Credits (CRILC) — which will collect, store and disseminate credit data to lenders — as Special Mention Account-2 (SMA-2), which has principal and interest payment overdue between 61 and 90 days, the banks should mandatorily form a committee to be called JLF if the aggregate exposure in that account is Rs 100 crore and more.
The JLF exercise is fast becoming another avenue for lenders to evergreen their problem accounts.