Govt slashes allocation for revival of sick PSUs by half

NEW DELHI: The Left will see red on this one. The government has slashed the allocation for the revival of sick PSUs under the department of heavy industry (DHI), by more than half for the next fiscal. The viability of revival will depend on the bankability of the proposal.

By reducing the plan allocation significantly, the government seems to be relying more on banks to bail out the enterprises that can be revived.

The MoF has allocated a paltry sum of Rs 88 crore, representing a sharp fall of 54% from Rs 197 crore provided last year, for the revival of sick PSEs falling under the DHI. This comes even as the DHI demanded budgetary support of Rs 400 crore for the purpose of revival.

The move falls in line with the government���s plan to revive only those PSEs that conform with standards set by banks for normal business loans and are found acceptable. Further, revival packages will be partly funded from the proceeds of the National Investment Fund (NIF) and the balance funds for revival will come as debts from banks and through the sale of assets.

This is a departure from the past, wherein revival packages for sick companies were being funded through budgetary allocations.

While banks have repeatedly lent to sick PSEs on the back of a government guarantee, this time around, banks and FIs are likely to be forced into lending to these companies without a government guarantee. Andrew Yule, Burn Standard, Hindustan Cables and Tyre Corporation of India are among the sick state-run companies that are expected to qualify for the revival programme.

���Under the garb of the corporate debt restructuring mechanism, banks are routinely arm-twisted to lend to sick state-owned enterprises. In some cases, these enterprises have gone through several failed revival schemes sanctioned by the Board for Industrial and Financial Reconstruction,��� a top official of a PSU bank said.

While the underperforming PSEs often get away without meeting borrowing requirements, banks are saddled with bad loans, he added.