Banks may soon get to finance stalled projects

Soon, banks may be allowed to pump in funds into projects, which have been classified as non-performing assets (NPAs), but can be revived if handled well.

To ease the burden of rising NPAs — loans that do not yield returns — the finance ministry is considering a proposal to provide banks a single-window opportunity to identify “viable” stressed assets and finance them to rekindle growth, a senior government official told HT Stock Market Trading Tips

However, only those projects that have been stranded due to external reasons including economic slowdown and shortage of raw materials would be considered for such restructuring.

“Such projects would be kept under scrutiny and after one year, would be classified as standard assets implying they are productive, in case they can maintain their repayment cycle and show signs of picking up,” the official said, while citing the recently submitted Santosh B Nayar committee report on restructuring of stressed assets. Nayar is the chairman of India Infrastructure Finance Company Ltd.

The move would not only help restart stranded projects, especially those in the infrastructure sector, but ease the level of NPAs in the banking sector Financial Astrology Trading Tips

Asset quality in state-owned banks has been under pressure due to rising NPA levels.

The Nayar panel report on financing infrastructure projects, which was recently submitted to the finance ministry, has underlined the need to “revive all viable projects irrespective of the asset classification status, as saving such capacities is of paramount importance in the long-term interest of the economy.”

In the latest credit policy review, RBI governor Raghuram Rajan also indicated that debt restructuring norms for stressed projects could be relaxed, a move that would provide flexibility in loan repayment, especially in case of power projects that have been stranded due to non availability of raw material including coal Intraday Trading Tips

The 5:25 norm, which allows banks to go in for periodic refinancing of loans of 25-year tenures, is likely to be extended even for existing projects categorised as standard and banks would be permitted to take a greater chunk of equity than the current permissible limit. The current 5:25 norm, introduced in July, is applicable only for new projects.

Finance minister Arun Jaitley met chairman of public sector banks on November 20 to take stock of bad loans and discussed steps to bring down NPAs.

“The RBI is looking into the issue and this would be critical going ahead as it would help in restarting many stranded projects, which would eventually be beneficial for lenders,” said a mid-sized public sector bank chairman, who did not wish to be identified Commodity Trading Tips