RBI plan to tackle 12 stressed a/cs credit positive for banks: Moody’s
EPC space across sectors. CDC has also become interested in acquiring stressed power projects,” said the first person aware of the company’s India strategy, requesting anonymity. CDC’s interest comes at a time when the government is trying to address the problem of stressed assets in the power sector. JM Financial Research, in a March 8 note, wrote that its 2016 study of stressed power assets had concluded that of the total 28 gigawatts (GW) generating capacity in question, assets accounting for 14GW were at high risk.
The second person, who also didn’t wish to be identified, said that Chinese firms have been trying to explore opportunities in India to drive growth.
China Harbour Engineering is a unit of China Communications Construction Co. Ltd. Chinese firms’ interest stems from ambitious plans such as Sagarmala and Bharatmala. While the total road length to be developed as expressways under Bharatmala will be 51,000km, the Sagarmala programme envisages construction of new ports to harness the country’s 7,517km coastline and setting up as many as 142 cargo terminals at major ports.
“China Southern Power Grid has been looking to bid for power transmission projects in India,” said the first person.
Queries emailed to the Chinese embassy in New Delhi, China Communications Construction Co., China Datang and China Southern Power Grid remained unanswered.
Moody’s Investors Service on Monday said that the Reserve Bank of India’s (RBI) plans to resolve 12 large stressed accounts, which account for 25% of stressed assets, will be credit positive for the banks as any meaningful resolution will improve their overall asset quality. It will also set a precedent for resolving non-performing loans (NPLs) from smaller borrowers.
Moody’s believes that given the strict timeline under the Insolvency and Bankruptcy Code (IBC) of 180 days, which is further extendable to 270 days, after which a company will be liquidated, resolution process will get accelerate and help in loan recoveries. However, the strict timelines may force some companies into liquidation and may have a negative effect on banks, particularly in cases where little collateral is available.
The Indian banking sector is sitting on pile of ₹10 lakh crore worth of stressed assets of which gross bad loans account for ₹7.7 lakh crore and the rest are restructured loans.
“We expect that the directive will negatively affect banks’ profitability over the next year if they need to take large write-downs relative to their existing loan-loss reserves for those assets,” the report noted.
The government plans to invest ₹3.96 lakh crore in the current financial year to fund its infrastructure plans