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Finance Ministry asks PSUs to take over some stressed projects

25 Oct 2016 Evaluate

In order to reduce the quantum of bad loans in steel, power and shipping sector, the Finance Ministry has asked Public Sector Undertakings (PSUs) such as NTPC, Steel Authority of India and Cochin Shipyard to examine taking over some stressed projects in their respective sector, in coordination with the lender banks. This is expected to speed up resolution of bad loans, as state-run banks had not been acquiring assets from struggling companies and running or selling them to asset run companies for fear of scrutiny by vigilance agencies. This move will help stake-run banks to clean up their books.

Finance Minister Arun Jaitley said that this will necessarily involve the banks invoking their powers under the contract, converting a part of their debt into equity, taking control of those units and appointing management team of established people of either current or retired/former representatives who have a great experience of those sectors. 

FM further said that bankers have been facing problems in managing the companies for which debts were converted into equity. Now a new plan is being worked out wherein PSU with expertise in these three sectors help banks in operating these defaulting companies or some of their units. Cash-rich PSUs taking over stressed projects, however, would involve complex negotiations on how much haircut banks are willing to take and how to deal with the accumulated liabilities of such firms.

As per government data, the stressed assets (gross NPA and restructured loans) of PSU banks rose to Rs 7.83 lakh crore (15.74 per cent of gross advances) as on June 2016 from Rs 7.46 lakh crore (14.62 per cent of gross advances) as on March 2016. Bulk of the stressed loans is in the infrastructure sectors such as power, steel and shipping. Steel sector companies are the most leveraged, owing around Rs 3 lakh crore to the banking sector.


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