ICICI bank and Union bank benefit from construction sector package

Recent government initiatives to ease the construction sector's woes have come at a time when the sector's growth has slumped to 1.5 per cent in the first quarter of this financial year from 5.6 per cent a year before. Besides reducing the burden of companies, struggling with high debt, these steps are expected to reduce the problem of bad loans.

Advances to the construction sector account for only 1.1 per cent of all bank loans. But 27 per cent of these loans are stressed, according to Kotal Institutional Equities, making it the second-highest stressed sector, after basic metals. Gross non-performing loans of the sector stood at 12.2 per cent at the end of the first quarter of the financial year.

The relief measures include handling pending disputes under the new arbitration Act, which would limit delays in decision-making to 12 months. As the total value of pending claims is estimated to be a whopping Rs 70,000 crore, a timely resolution of such cases will provide the much-needed liquidity boost to cash-strapped companies.

Further, 75 per cent of claims that are decided in favour of construction companies are to be paid by the government entities concerned. This move, experts contend, could help companies pare their debts and bid for new projects. The biggest banking sector beneficiaries of these measures would include ICICI Bank and Union Bank, which reported the highest NPA ratios in the sector, Ishan Bakshi reports.