 "Power projects nearing ops date to expand banks' restructured portfolio")
The restructured loan portfolios of banks are likely to expand, as several infrastructure projects, mostly in the power sector, are nearing their date of commencement of commercial operations (DCCO) without issues like land acquisition, environmental clearance and government approvals being addressed.
According to Espirito Santo Investment Bank, DCCO of 86 per cent power projects under construction come between 2012-13 and 2014-15. The completion of many of these could be delayed due to legal and other extraneous reasons. Hence, banks might have to restructure their loans to these projects, analysts said.
At the end of December 2012, banks had restructured only four per cent of the power sector advances.
Power projects like Bhartiya Rail Bijlee, East Coast Energy, KSK Mahanadi Power and Gati Infrastructure are getting delayed due to land acquisition problems, shortage of capital, opposition from locals and absence of government approvals.
State Bank of India has sanctioned Rs 32,301 crore loans for power projects that are either stalled or delayed, finance ministry sources said.
Analysts feel postponement of DCCO for some of these projects is one way of reducing the stress in the system.
The Reserve Bank of India (RBI) has decided to continue with the benefit of asset classification regarding infrastructure projects, commercial real estate and non-infrastructure projects where the delay is due to legal and other extraneous reasons like delay in government approvals.
Infrastructure project loans, which are restructured within two years of the DCCO, will not be considered as restructuring, RBI said. It has also been decided that mere extension of DCCO even in the case of commercial real estate projects will not be considered as restructuring, if the revised date is within one year and there is no change in other terms and conditions except possible shift in repayment schedule.
"The key issue confronting the banking system now is the debt level of large corporates in a weak economic environment. We had argued that a revival in the economic environment is at least 18-24 months away and a postponement of DCCO was one way to mitigate the stress," analysts with Espirito Santo said.
"We believe RBI's new proposals are a step in this direction, and offer the best way out for banks and corporates. These will be used to extend the DCCO of a large number of projects, which are nearing their DCCO in 2013-14 and 2014-15, primarily in the power sector, without having to make additional provisioning," the analysts said.
According to Espirito Santo Investment Bank, DCCO of 86 per cent power projects under construction come between 2012-13 and 2014-15. The completion of many of these could be delayed due to legal and other extraneous reasons. Hence, banks might have to restructure their loans to these projects, analysts said.
At the end of December 2012, banks had restructured only four per cent of the power sector advances.
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These loans accounted for 8.3 per cent of the banking system credit.
Power projects like Bhartiya Rail Bijlee, East Coast Energy, KSK Mahanadi Power and Gati Infrastructure are getting delayed due to land acquisition problems, shortage of capital, opposition from locals and absence of government approvals.
State Bank of India has sanctioned Rs 32,301 crore loans for power projects that are either stalled or delayed, finance ministry sources said.
Analysts feel postponement of DCCO for some of these projects is one way of reducing the stress in the system.
The Reserve Bank of India (RBI) has decided to continue with the benefit of asset classification regarding infrastructure projects, commercial real estate and non-infrastructure projects where the delay is due to legal and other extraneous reasons like delay in government approvals.
Infrastructure project loans, which are restructured within two years of the DCCO, will not be considered as restructuring, RBI said. It has also been decided that mere extension of DCCO even in the case of commercial real estate projects will not be considered as restructuring, if the revised date is within one year and there is no change in other terms and conditions except possible shift in repayment schedule.
"The key issue confronting the banking system now is the debt level of large corporates in a weak economic environment. We had argued that a revival in the economic environment is at least 18-24 months away and a postponement of DCCO was one way to mitigate the stress," analysts with Espirito Santo said.
"We believe RBI's new proposals are a step in this direction, and offer the best way out for banks and corporates. These will be used to extend the DCCO of a large number of projects, which are nearing their DCCO in 2013-14 and 2014-15, primarily in the power sector, without having to make additional provisioning," the analysts said.