Govt to clear hurdles in stressed sectors

Mumbai: The government will create a favourable environment to prevent any future stress in the power, steel, roads and ports sectors, top government officials said on Tuesday after a meeting with top bankers.

The officials met bankers at the Reserve Bank of India (RBI) headquarters to discuss about 85 large projects worth about Rs.3.5 trillion. About 4% of these projects have already been marked as bad debt.

“The discussions were a preventive step. Not all projects are NPAs (non-performing assets), but the problems are common for all. We wanted to address these common problems. By intervention, or by some policy measures by the ministries, or by some other active measures by the banks, we can save those projects,” said Hasmukh Adhia, secretary, department of financial services, in a post-meeting interaction with reporters.

He was accompanied by R.N. Choubey, special secretary, power, RBI deputy governor S.S. Mundra, State Bank of India (SBI) chief Arundhati Bhattacharya and Indian Banks’ Association (IBA) chairman T.M. Bhasin.

The officials did not elaborate on any decisions taken or any preventive measures planned.

“Basically the meeting was held to discuss in detail about the large stressed (assets) exposure across various sectors. We found the issues are largely inter-ministerial or related to clearances. But the discussions were also held around the regulatory prescriptions and expectation. From RBI, we will certainly examine all those issues within the overarching regulatory framework,” said Mundra.

According to the economic survey, released in February, projects worth Rs.8 trillion are stressed.

To prevent a further build-up of stressed assets, starting 1 April 2014, RBI had asked banks to try and recognize stressed assets early and come up with a corrective action plan (CAP). To do this, RBI had said joint lenders’ forums must be formed when an account is more than 60 days overdue. While such forums were set up, bankers were finding it difficult to agree on a CAP due to differences of opinion on the best solution for an account.

As a way to tackle this, bankers on Tuesday said all banks will agree with the majority decision.

“Today, decision has been taken that all banks will have to fall in line, in case members contributing 75% by volume and 60% by number agree upon a package,” said IBA chairman Bhasin, who is also chairman and managing director at Chennai-based Indian Bank.

In a letter from the department of financial services, dated 18 February, addressed to the chief executive officers of public sector banks, the finance ministry has said bankers should work together to deal with stressed assets, Mint had reported on 18 March.

Meanwhile, bankers seemed more confident to lend.

Bankers will take up future lending more aggressively because the economy is picking up, Bhasin said, adding banks will confidently lend to new projects as well as to stalled ones.

Bhattacharya of SBI said the government’s decision to auction more coal blocks has given confidence to bankers.

“It gives us a little bit more confidence that, going forward, we will be in a position to know these projects will be totally viable and healthy again,” she said.

According to Choubey, the government is launching two schemes for power distribution firms, meant for rural and urban areas, that will help discoms improve their network and minimize power losses. “The total outlay for the two schemes is Rs.1.20 trillion and this is going to be sanctioned and approved for all discoms with 60% subsidy over the next two years. These two schemes will go a very long way in meeting their immediate needs, or network upgradation, as well as helping the discoms in cutting down losses,” he said.

“As we are aware, a lot of losses happen because of theft of electricity. Once we are in a position to upgrade our network, we can put in place such systems where the loss due to theft can be absolutely minimized. It’s a huge investment,” Choubey said.

On the sidelines of the meeting, he said while the government will be giving cash subsidy of up to 60%, the government expects discoms to contribute at least 10% equity. The balance can be raised from the markets or the states, he said.