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Monday, December 26, 2011

Government wants common strategy from PSU banks on lending & debt recast plans for 4 troubled sectors

NEW DELHI: Amid rising concerns over bad debt, the government has finally got all state-run banks on board to push a common strategy on lending and debt recast plans for four sectors - aviation, power, telecom and textiles - that are facing stress.

Sources said that in a first of its kind meeting, financial services secretary D K Mittal met heads of top public sector banks in Bangalore last Sunday to chalk out a plan in the wake of fears of the situation worsening due to slowing pace of economic activity.

The move comes at a time when several banks have restructured their loans to power companies and state utilities, or have stopped lending, and a debt recast package for the textiles sector is in the works. Similarly, in case of aviation, loans to Air India have been restructured, while a request for fresh funding assistance from Vijay Mallya-promoted Kingfisher Airlines has been submitted to lenders led by State Bank of India. For telecom, there are worries of loan repayment as several banks had provided funds to service providers to pay the spectrum fee of nearly Rs 67,000 crore. Already, telecom companies are under strain due to falling average revenue from subscribers and the fate of some is unclear due to the 2G scandal.

Bank executives, however, said that the meeting was "usual discussion" and not focused on any particular steps. A government official said that the idea was to get all the public sector players, who control nearly three quarters of the lending in the country, on the same page. "It is important that there is better coordination between these banks even if they are not part of the same consortium that lends," the official said.

Another official pointed out that there have been instances in the past where a borrower has defaulted in loan repayment to one public sector bank but has managed to get a fresh loan from another state-owned lender.

Sources said that going forward, the finance ministry is planning to hold quarterly meetings with bankers for better coordination.

On Friday, the Reserve Bank of India too stuck a note of caution on non-performing assets of banks, which are rising three times faster than the five-year average. It had made a special mention of the power sector and said: "With losses among state electricity boards and coal supply issues faced power projects, high concentration of bank credit in power generation is a matter of concern," the regulator had said in the Financial Stability Report.

RBI's stress test showed that if bad loans were to increase 150%, 20 banks representing 46% of bank lending in India would be forced to seek capital support as their core capital adequacy would fall below the prescribed 6%.

Considering that gross NPAs of banks were at 2.01% in March 2011, a 150% increase would translate to a gross NPA ratio of 5.02%.

Source: EconomicTimes


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