Government readies Rs 50,000 crore equity fund for power sector

NEW DELHI: The government is readying a mega Rs 50,000 crore equity fund for the power sector as it looks at 24x7 electricity supply in villages in at least those states that are ruled by BJP.

The initial corpus is expected to flow in from state-run banks and power sector FIs such as Rural Electrification Corporation and Power Finance Corporation.

Simultaneously , the government is also working an asset reconstruction company (ARC) for the power sector, along with a separate one for roads, financial services secretary G S Sandhu said on Friday .

These ARCs will take over stalled power and road projects and help revive them to ensure that funds lent by banks don't end up as bad loans.

Sandhu said the strategy was to recover funds invested by banks and also to revive the projects. He said the fund would be set up through domestic sources and added that foreign funds were keen to invest but no decision has been taken yet on this. Work is on to give a final shape to the fund.
The initiatives come along with other steps announced in the Budget such as an infrastructure fund and special provisions for lending to core sector projects. Asked why separate asset reconstruction companies (ARCs) are being set up, Sandhu said the two sectors need specialised attention and the existing ARCs did not have the capacity to deal with the power or roads sector projects.

The sharp economic slowdown and regulatory issues have taken a toll on projects and have piled up the bad loans of banks. The financial services secretary also said that apart from diluting stake in public sector banks, the government has asked the lenders to set up special purpose vehicles to monetize their real estate other non-core assets.

"We are confident that we will raise a good amount by hiving off non-core assets," Sandhu said, adding that banks have been asked to draw up their strategy. He also said that if there was any gap left after this the government could step in with funds from the budget.

"Banks have a lot of real estate...the SPV can raise money and that money can come in the form of equity into these banks," Sandhu said.

The first off the block to set up an SPV would be Bank of India which has already approached RBI for permission to launch such an entity .

State run banks would require additional equity of Rs 2.4 lakh crore by 2019.

The government plans to raise capital from all possible sources including sale of shares largely through the retail segment. Sandhu said the PSU character of the banks would be maintained and the government was will to reduce its stake to 51%. Government shareholding in banks range from 56% to 88%.

"Which banks will go first, that we have to work out. We have asked all banks to submit their capital requirement plans. They have given their proposal and we are giving final touch to them. The schedule will be worked out soon," he said.

Sandhu said the government was also working on merger of some banks. As a first step, some subsidiaries of State Bank of India could be merged but a final decision is yet to be taken.