Rs 1.5 lakh cr used to finance projects will soon turn NPAs under new RBI law

In recent years, many of the power projects in India have faced regulatory hurdles, fuel security issues and even lack of clarity regarding fuel pricing (imported gas and coal) and power tariffs. Owing to which, some of these projects made their way in the category of non-performing assets (NPAs), despite not having any credit problems. In India, an asset is regarded as an NPA if it is unable to repay a loan for a consecutive 90 days.

And now on account of a new rule introduced by the Reserve Bank of India (RBI), which makes it mandatory for banks to provide for debt debts in case the cost of a power project goes up by 10% as against the original estimate owing to delay, banks are facing the prospect of at least Rs 1.5 lakh crore of their loans to around two dozen power projects turning non-performing. This was revealed in an Economic Times report.

This issue, which has been flagged to the RBI and top government officials, is much bigger as many projects fail to get fresh funding from lenders, said bankers.

According to a top banker, "The RBI had allowed us to fund projects that are delayed but which bank will be willing to set aside Rs 100 for a loan of Rs 100?"

One of the bank chiefs told the ET, "It is not just the impact on banks but also the adverse affect on the economy, which is suffering due to lack of infrastructure."

The cost overrun for projects of some top private players such as Reliance, Adani, Jindal, Sterlite, GMR and Hindujas as well as public sector companies such as NTPC IS UP TO 62%. From the scheduled date of commercial operation, some of the projects are delayed by up to four years.

Banks are grappling with record NPAs, resulting in Bank of India reporting its first loss in two decades. Other top lenders such as ICICI Bank, Bank of Baroda and Punjab National Bank witnessed a sharp fall in profits as they had to set aside funds for loans that had turned sticky.
(Image: www.bankingawareness.com)