The government and Reserve Bank of India are working on measures that include relaxing norms for non-performing assets (NPAs or sticky loans) and prudential lending to kick-start key infrastructure projects.
The broad idea is to stimulate the economy that is likely to grow slower this year after two years of 9 per cent growth. Forecasts for this year put growth at 8 per cent, owing to the global liquidity crunch and demand slowdown. The six core sector industries, however, grew 5.8 per cent in September, after a sluggish 2.7 per cent in August.
To this end, RBI is considering a special exemption from NPA norms to infrastructure projects that have been delayed by more than two years.
Earlier, projects for which completion was delayed up to one year were exempt from NPA provisioning by banks. This was extended up to two years in May this year, but only for projects delayed due to court cases.
Infrastructure companies have been demanding that delays on the ground should not be counted as NPAs because interest was being regularly paid on these loans. Also, once these loans are designated NPAs, banks cannot provide these companies with fresh loans for other infrastructure projects.
Banks currently have to provide for losses due to NPAs from 10 per cent of the loan amount in the first year, going up to 100 per cent by the fifth year.
“The relaxation from NPA provisioning is likely to be on a case-to-case basis for projects delayed by more than two years,” said a finance ministry official.
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Several large infrastructure projects have been impacted either because of litigation or lack of assured gas supply. For instance, the 1,015 Mw Nagarjuna Power project in Karnataka with an investment of Rs 5,440 crore is caught in a legal dispute over land acquisition.
The government may also relax prudential lending norms for the infrastructure sector by increasing bank exposure limits for such projects.
Currently, credit exposure to a single borrower is capped at 15 per cent of a bank’s capital. This exposure can be extended up to 20 per cent provided the additional credit is for infrastructure projects. Credit exposure to borrowers belonging to a group may exceed the exposure norm of 40 per cent of a bank’s capital by an additional 10 per cent (i.e. up to 50 per cent), again provided the additional credit is for infrastructure projects.