The Reserve Bank of India (RBI) has advised banks to follow existing asset classification norms and mark the Ratnagiri Gas and Power Private Limited (RGPPL) – formerly known as the Dabhol power project – as a non-performing asset (NPA) as on March 31, 2009.
This is irrespective of the new tariff plan submitted by the company to the Central Electricity Regulatory Commission (CERC).
The company has four lenders – State Bank of India, IDBI, ICICI and Canara Bank. Banking sources close to the development said that the government was of the view that the banks’ exposure – amounting to around Rs 7,500-8,000 crore in their books – should be restructured as a standard asset following the tariff plan. The government had communicated this to RBI.
However, this failed to convince the apex bank, which is of the view that once an account has been marked as an NPA, it will continue to be so for at least one year.
While the terms and conditions for loans are the same for all banks who lend funds for a project’s finance, the asset classification cannot be different for different banks. Moreover, if a bank is satisfied about the functioning of the plan for a year from the date of classifying the asset as an NPA, it may restructure it back as a standard asset.
At present, for the financial year 2008-09, RBI wants the Dabhol asset to be classified as an NPA, sources close to the development said. Currently, two banks, including Canara Bank, have marked the asset as an NPA.
As a result, RBI believes that, when two banks have already classified an asset as an NPA, others also have to follow the same norms given the standard conditions for exposure to loans.
Canara Bank, with an exposure of around Rs 350 crore, has marked the asset as an NPA for the financial year ended March 31, 2009, said officials.
Moreover, one of the major criteria for restructuring of an asset as per the new guidelines issued by the RBI in August last year was the financial viability of the projects.
It stated, “No account will be taken up for restructuring by banks unless the financial viability is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package. The viability should be determined by the banks based on the acceptable viability benchmarks determined by them, which may be applied on a case-by-case basis, depending on merits of each case.”
The restructuring proposal submitted to the government had included a 50 per cent hike in the tariff for sale of power from the project and, upon its approval from the CERC, the project is expected to become viable after this.
RGPPL had earlier approached the commission for permission to sell the power generated from the 2,150-MW Dabhol power plant to Maharashtra State Electricity Distribution Company Limited (MSEDCL) at a higher price. MSEDCL is the sole buyer of power from the Dabhol project, at a rate of Rs 3.65 per unit.
