 "Govt asks banks to take ownership control of stressed projects")
To restart stalled projects through infusion of funds from lenders, the government has asked banks to take ownership control of projects that are unable to service loans. At a meeting with bankers on Tuesday, officials from several infrastructure-related ministries, as well as those from the finance ministry, prodded banks to boost funding to stuck projects.
Hasmukh Adhia, financial services secretary, said 85 projects, involving Rs 3.5 lakh crore, were reviewed at Tuesday’s meeting, of which four per cent had already turned non-performing. According to bankers present at the meeting, most of the accounts that haven’t become non-performing assets are stressed — either their loans have been restructured or they have repayment issues.
Bankers, however, said till promoters brought in more equity, additional funding wouldn’t be possible. In this regard, the government representatives asked banks to convert their debt into equity.
Recently, the Securities Exchange Board of India had relaxed debt-equity conversion norms for companies in distress. Under the relaxed norms, banks can convert their debt into equity in a listed borrower entity that is in distress without the market regulator’s pricing formula being applicable to such conversions.
According to bankers, regulatory dispensation for restructuring advances was sought from the Reserve Bank of India, which was ruled out. From April 1, banks have to make provisions for restructured standard assets on a par with bad loans — 15-20 per cent, compared with five per cent earlier. This has taken discincentivised banks from restructuring debt.
At Tuesday’s meeting, some large banks raised the issue of small bankers not agreeing to the terms of joint lenders’ forum (JLF), a body of lenders formed to initiate action towards companies in stress.
“A lot of issues were discussed with regard to JLF, where the consortium leader was following a set of practices and other were not falling in line. Today, a decision has been taken that all banks have to fall in line in case 75 per cent by volume and 60 per cent by number of the discussion has been finalised by the consortium leader,” said T M Bhasin, chairman of the Indian Banks’ Association and managing director and chief executive officer of Chennai-based Indian Bank.
Bankers said small banks were demanding the recovery of funds from escrow accounts, typically kept with large banks, be uniformly distributed. “When the funds are recovered, large banks take a major share of that, which is not desirable,” said a banker.
Hasmukh Adhia, financial services secretary, said 85 projects, involving Rs 3.5 lakh crore, were reviewed at Tuesday’s meeting, of which four per cent had already turned non-performing. According to bankers present at the meeting, most of the accounts that haven’t become non-performing assets are stressed — either their loans have been restructured or they have repayment issues.
Bankers, however, said till promoters brought in more equity, additional funding wouldn’t be possible. In this regard, the government representatives asked banks to convert their debt into equity.
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Bankers wanted promoters to bear at least 20 per cent of the project cost at any point. “Borrowers want the ratio at 90:10, which isn’t possible. We want at least 20 per cent of their contribution,” said a banker present at the meeting.
Recently, the Securities Exchange Board of India had relaxed debt-equity conversion norms for companies in distress. Under the relaxed norms, banks can convert their debt into equity in a listed borrower entity that is in distress without the market regulator’s pricing formula being applicable to such conversions.
According to bankers, regulatory dispensation for restructuring advances was sought from the Reserve Bank of India, which was ruled out. From April 1, banks have to make provisions for restructured standard assets on a par with bad loans — 15-20 per cent, compared with five per cent earlier. This has taken discincentivised banks from restructuring debt.
At Tuesday’s meeting, some large banks raised the issue of small bankers not agreeing to the terms of joint lenders’ forum (JLF), a body of lenders formed to initiate action towards companies in stress.
“A lot of issues were discussed with regard to JLF, where the consortium leader was following a set of practices and other were not falling in line. Today, a decision has been taken that all banks have to fall in line in case 75 per cent by volume and 60 per cent by number of the discussion has been finalised by the consortium leader,” said T M Bhasin, chairman of the Indian Banks’ Association and managing director and chief executive officer of Chennai-based Indian Bank.
Bankers said small banks were demanding the recovery of funds from escrow accounts, typically kept with large banks, be uniformly distributed. “When the funds are recovered, large banks take a major share of that, which is not desirable,” said a banker.