PFC, REC bad loans rise over ~11k cr in 3 yrs

The Comptroller and Auditor General (CAG) said the nonperforming assets of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) rose sharply to ~11,762 crore in the past three years.

In its audit report, the CAG said REC and PFC disbursed ~47,706.88 crore of loans to independent power producers (IPPs) between 2013-14 and 2015-16 and at the end of 201516, ~11762.61 crore of NPAs for IPP loans were recognised in their books of accounts. The auditor said the NPA generation worked out to a "significant" 21.72 per cent of the amount disbursed between 2013-14 and 2015-16.

The CAG underlined several misgivings in the loan sanction and disbursal procedure of the two lenders. "REC and PFC estimated a higher tariff at the time of appraisal of loan proposals, which resulted in sanction of loans worth ~8,662 crore in six cases where the levelised generation cost was higher than the actual levelised tariff, rendering the viability of the project doubtful," the CAG report stated.

“Assessment of experience of project promoters was based on individual judgement and promoters who did not have relevant sector experience were often found eligible for loans. Many of these projects could not be completed within schedule,” it added.

The audit also noticed diversion of ~2,457.60 crore by the borrowers in five cases. The report claimed REC and PFC could not ensure end utilisation of funds by borrowers.

“REC and PFC sanctioned additional loans for meeting cost overruns in a number of cases by relaxing conditions of internal prudential norms,” the CAG pointed out.

In a list of recommendations, the CAG sought strengthening of the process of loan appraisal. “The monitoring mechanism may be strengthened to ensure that loans disbursed are used for the specific purpose for which they have been sanctioned and incidence of siphoning/diversion of loan funds are eliminated,” the CAG added.

It also suggested restricting the cost overrun facility to select projects and independent verification of data submitted by promoters.