Litigation-hit core projects may not be classified as NPAs
RBI may relax norms governing non-performing assets of infrastructure projects to include projects delayed due to litigation.
By Niranjan Bharati, ET Bureau |
NEW DELHI: Here���s a breather for infrastructure companies stuck in litigation. The Reserve Bank of India (RBI) may relax norms governing non-performing assets (NPA) of infrastructure projects to include projects delayed due to litigation.
This would allow companies such as GMR, Larsen & Toubro and Reliance Infrastructure to avail more loans for infrastructure projects from commercial banks.
Once the relaxed norms come into play, delays up to one year would not be classified as NPAs. Today, projects delayed by more than a year are classified as NPAs. However, delays due to litigation are not considered separately.
In January this year, the central bank had excluded projects delayed up to one year from NPA provisioning.
The new norms would cover delay on account of litigation too. The central bank may also extend the time period for declaration of NPAs to two years. The step is being taken as the government fears that a large number of players in the infrastructure sector may get impacted by the norm as most of the projects in recent times have witnessed litigation.
Even if some companies run into litigation, it would make implementation of infrastructure projects virtually impossible as there are limited players in the sector. This is because the banks cannot lend to a company if it is classified as an NPA case. The bar applies even if a loan availed by a subsidiary is classified as an NPA.
Government officials as well as bankers are hopeful new RBI governor D Subbarao will relent on the finance ministry���s proposal to relax the NPA provisioning norms as he had supported the move in his earlier role as finance ministry.
���We expect RBI to react favourably to the proposal as the governor himself backed it when he was the foreign minister,��� a finance ministry official said. The proposal was mooted by the Indian Banks��� Association and has the backing of the finance ministry.
The total project cost for infrastructure projects in 2006-07 stood at Rs 1,01,744 crore (35.9% of the total industry project costs), and is expected to touch Rs 1,33,719 crore in 2007-08 (47% of total investment by the industry). Power sector has attracted the highest investment and covers 70% of total expenditure on infrastructure in fiscal 2008, followed by telecom and SEZ & industrial parks, according to RBI data.
This would allow companies such as GMR, Larsen & Toubro and Reliance Infrastructure to avail more loans for infrastructure projects from commercial banks.
Once the relaxed norms come into play, delays up to one year would not be classified as NPAs. Today, projects delayed by more than a year are classified as NPAs. However, delays due to litigation are not considered separately.
In January this year, the central bank had excluded projects delayed up to one year from NPA provisioning.
The new norms would cover delay on account of litigation too. The central bank may also extend the time period for declaration of NPAs to two years. The step is being taken as the government fears that a large number of players in the infrastructure sector may get impacted by the norm as most of the projects in recent times have witnessed litigation.
Even if some companies run into litigation, it would make implementation of infrastructure projects virtually impossible as there are limited players in the sector. This is because the banks cannot lend to a company if it is classified as an NPA case. The bar applies even if a loan availed by a subsidiary is classified as an NPA.
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���There are only a few companies that have expertise in big infrastructure projects. If most of them are denied loans because of legal issues, it would be difficult to sustain the country���s infrastructure development initiative,��� a finance ministry official said.Government officials as well as bankers are hopeful new RBI governor D Subbarao will relent on the finance ministry���s proposal to relax the NPA provisioning norms as he had supported the move in his earlier role as finance ministry.
���We expect RBI to react favourably to the proposal as the governor himself backed it when he was the foreign minister,��� a finance ministry official said. The proposal was mooted by the Indian Banks��� Association and has the backing of the finance ministry.
The total project cost for infrastructure projects in 2006-07 stood at Rs 1,01,744 crore (35.9% of the total industry project costs), and is expected to touch Rs 1,33,719 crore in 2007-08 (47% of total investment by the industry). Power sector has attracted the highest investment and covers 70% of total expenditure on infrastructure in fiscal 2008, followed by telecom and SEZ & industrial parks, according to RBI data.
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