Finance Ministry proposes Relief package for Stressed Infra projects

With the objective of providing relief to the stressed infrastructure sector, the Finance ministry is chalking out a plan to find an alternative by which ‘bad assets’ are recognized. This will enable lenders to have the provision to resuscitate projects that have run into rough weather due to various stumbling blocks, thereby providing a much-needed thrust to investments. The ministry hopes that its proposal can be implemented in about three months’ time, following consultations with the Reserve Bank of India.

Worthy assets not NPAs due to delays:

The crux of the proposal put forward by the ministry suggests that a fully worthy asset should not be considered as a bad asset just because it has been inordinately delayed. Such an asset should not be relegated to the category of a non-performing asset (NPA).  This point of view was mooted by a senior finance ministry official who confirmed that the government was considering taking all necessary steps to ensure that relief is provided to all stressed sectors, particularly the infrastructure sector.

Hike in gross NPAs and Restructured advances:

It has been seen that the gross NPAs along with restructured advances had risen to Rs. 1,36,970 crore as on March 31st, 2013, which is 17.43% of the total advances. This is a considerable hike compared to the Rs.12,190 crore, which is 4.66% of the total advances,  as on March 31st, 2009. This state of affairs has intensified the pressure on banks which had extended loans for infra projects. It has been suggested by experts that a special dispensation be created for extending such debts.

Ministry suggests restructuring loans:

It would be unfair to blame either the promoter of such projects or the banks for the creation of such stressed assets. Such a state of affairs can be attributed to policy paralysis or due to the inability to obtain timely clearances. The Finance ministry is pondering over suggesting a proposal whereby the promoters of important infra projects do not have to bear the brunt of unexpected delays.  According to this proposal, a provision should be in place so as to restructure the loan. Thereby, it will enable extension of the moratorium on the interest and principal without any cost burden to the borrower or lender. Such a provision is normally extended to large infra and industrial projects.

Banks under pressure to provision stressed loans:

Restructuring of assets due to extension of moratorium, currently inflicts a huge financial burden on banks. This is because, even though the asset is considered standard, banks will be forced to step up provisioning for them. After the initial restructuring of the project, provisioning has to be made if the loan becomes stressed, thereby putting the banks under considerable pressure.

Ministry hope banks would relent:

The Finance ministry will lend its voice in support of a more considerate treatment towards such loans. It would be hoping that banks would relent in restructuring loans and enabling the progress of projects that are in the midst of unforeseen delays. Besides, the relief would also stand to benefit projects being promoted by the Cabinet Committee on Investment (CCI) as also those that come under the purview of the Project Monitoring Group (PMG), formed by the government. The ministry also felt that for projects that have a sound backing, extension of loan tenure should be allowed without any penalty.