With rising non-performing assets (NPAs), slow corporate lending and poor show on their earning growth, banks have expressed their incapability to fund Government projects unless they reach comfortable level in all aspects. They said they will keep the stalled projects on their wait-and-watch mode. This has come at a time when the Government is making all-out efforts to execute its stalled projects for which the Finance Ministry is putting in place a coordination mechanism to resolve the issues.
Finance Ministry sources privy to development told The Pioneer, “Bankers, especially from the Public Sector Banks (PSBs), may back off from the Government’s new projects as they are not happy due to slow offtake of corporate credit, rising bad loan or non-performing assets (NPAs) level and corporate’s poor show in their earnings in fourth quarters.”
According to the Finance Ministry, there are about 299 stalled projects, worth over Rs18 lakh crore. Some projects worth Rs3.51 lakh crore are funded by banks, and of these, 4 per cent have turned dud assets. “With regard to new projects, we were informed by the State Bank of India that there is very little demand for credit for new projects. Corporate demand for credit is not coming in as expected by the banks. However, agriculture sector and micro, small and medium enterprises (MSME) sector are picking up at a satisfactory pace,” a senior official of the Finance Ministry said.
When asked about the particular sectors that are facing hurdles, he said, “Major sectors affected are iron and steel, sugar, mining, construction and power sector. Steel and Iron has been affected due to high cost of iron ore. There is a need to introduce anti-dumping duty on imports of steel.” The projects in power, mining and construction sectors also tell the same story.
“For instance, power sector is facing fuel supply problems, while mining suffers from involvement of State Governments. However, road and construction sector suffers because of the delayed clearance from National Highway Authority of India. The problems of each sector needs to be addressed separately,” the official added.
As per the Finance Ministry data, the corporate lending has slightly gone up from 5.15 per cent in December 2013 to 6.01 per cent in December 2014. Also, the gross advance of PSBs has recorded a year-on-year growth of 8.41 per cent in December 2014 as against 16.05 per cent for the same period last year. While the RBI data said that gross NPAs of the PSU banks went up to Rs2,60,531 crore as on December 2014. Gross NPAs of PSBs rose sharply to 5.33 per cent in September 2014 as compared with 4.72 per cent of total advance at the end of March 2014.
As per the World Bank report, the outlook for new investments continues to be dented by the debt overhang in the corporate balance sheets, which has extended to the public sector banks. “With India’s tax-to-GDP ratio remaining stubbornly low, the country will need to explore alternative channels of long term investment, and revive public and private participation model of financing,” the report said.