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Finance ministry asks banks for stalled projects’ list

LiveMint logoLiveMint 02-06-2014 Dinesh Unnikrishnan

Mumbai: A week after the National Democratic Alliance government assumed power, the finance ministry is trying to restart stalled projects that will also reduce the burden of bad loans on banks.

The ministry has asked some banks to submit a list of stalled projects to which they have lent money to see if there are ways to expedite clearances and make them viable, said officials at three banks.

Speeding up clearances is critical for banks, particularly those owned by the government, as high levels of non-performing assets (NPAs) have reduced their ability to lend further.

Gross NPAs of 40-listed Indian banks stood at `2.42 trillion at the end of March, up 34.41%, from `1.8 trillion in the year-ago period, according to data sourced from Capitaline.

There were 215 stalled projects involving investments of at least `250 crore each, adding up to at least `7 trillion, former finance minister, P. Chidambaram had said in April 2013. Plus, some 127 new projects with investments worth `3.5 trillion, too, were not moving, taking the overall stake of the stalled projects to about `10.5 trillion.

“They (finance ministry) have asked the details of stalled projects, which we have already submitted,” said Sushil Muhnot, chairman and managing director of state-run Bank of Maharashtra.

Executives of two other leading state-run banks confirmed they have received such enquiries from the ministry.

“This is not something new,” said Arun Kaul, chairman and managing director of Kolkata-based Uco Bank. “Frequently, we have been receiving queries about the state of stalled projects. We are hopeful that some improvement will happen.”

The finance ministry under the previous government had also sought details on stalled projects from banks in 2013.

State Bank of India (SBI), the country’s largest lender, said there was no specific communication from the finance ministry asking for a list of stalled projects. A third banker with a Mumbai-based government-bank, too, said he is not aware of any such communication from the ministry.

Under the norms, if a project fails to take off at the promised date and repayments do not happen, banks have to classify them as NPAs after the date of commissioning.

Banks typically restructure these loans to avoid classifying them as NPAs, which attract higher provisioning. Banks need to set aside 5% of the loan value when they restructure a loan and up to 100% for a bad loan.

Restructured loans have seen a sharp increase in recent years. At end March, banks have restructured `3.3 trillion worth of loans, half of which were from the infrastructure, iron and steel and power sectors.

Besides impacting their ability to lend further, rising bad and restructured loans impact the profitability of banks.

Banks also recast loans bilaterally with companies. The aggregate amount of such recasts are not available, but is estimated at `2-3 trillion.

That takes the total amount of stressed assets in the economy to about `8.5 trillion, which is 14% of the total loans given by Indian banks.

It remains to be seen how much of the initiatives of the new government to unclog the system translate into real action, said Madan Sabnavis, chief economist at rating agency Credit Analysis and Research Ltd.

“There were similar efforts in the past as well, but didn’t yield much results as there were several other agencies involved in the decision making process,” Sabnavis said.

To kick off the stalled projects, the previous government had formed a cabinet committee on investments (CCI). By the end of January 2014, the committee cleared 296 projects with estimated project cost of `6.6 trillion, Chidambaram said while presenting the interim budget for 2014-15.

“We have to wait and watch this time,” Sabnavis said, adding that steps like giving the charge of critical ministries such as coal and power to a single ministry will speed up decision-making.

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