SBI warns about aborting lending to infra cos

Mumbai, Aug. 31: The nation’s largest lender State Bank on Friday said banks will have to “abort” lending to infrastructure projects, especially to the power sector, because of the harrowing experience of the past decade as most such loans have turned sour.

The power sector loans are facing a slew of problems due to a changes in non- performing assets recognition after the February 12 RBI circular, which was upheld by the Allahabad High Court last week.

Following the end of the RBI deadline on August 27, as many as 30 power projects with a cumulative exposure of ` 1.7 trillion are now facing bankruptcy proceedings. Banks have under a fortnight to resolve them, else will have to be sent to NCLTs.

“Somehow, the kind of problems which all banks are now faced with, may be they will have to abort their financing to the infra projects,” SBI managing director Dinesh Kumar Khara told reporters on the sidelines of an event.

When asked if the infra sector funding, critical for economic progress, is “untouchable for banks now”, he singled out the power sector saying, “nobody wants to touch that”.

Making it clear that banks are open to lending to all the sectors till the risks are hedged properly, he said there are problems relating to the fuel supply pacts and power purchase agreements.

Mr Khara said bankers are open to funding road projects, and credited to the National Highways Authority which structures these projects.

Fellow MD P. K. Gupta said in the case of the power sector, the February 12 circular revamping the NPA recognition norms, has made the going difficult for banks because of the stipulation of quicker recognition of an asset as an NPA and its immediate referral to insolvency courts.

Mr Gupta also said a referral to NCLT will naturally lead to the annulment of PPAs, which unnerves bankers.

SBI, which has around ` 27,000 crore exposure to these troubled accounts, has assessed 11 power assets and has found four of them not resolvable, while the rest seven can be resolved. According to a Icra report, after the August 27 deadline, banks will have to set aside around ` 1 trillion in additional provisions for around 70 accounts in the power, EPC and telecom sectors worth around ` 3.8 trillion.