Intro: On the agenda, FM to also discuss profitability of banks and push lenders to finance non-renewable sources of energy
Re-igniting the Rs 8 lakh crore worth of stalled projects will be the key agenda of the finance minister's meeting with the bank chiefs in New Delhi today. These projects in moribund state are spread across infrastructure, manufacturing, mining and power sectors, with the private and public sector accounting for Rs 1.8 lakh crore and Rs 7 lakh crore respectively, according to the government data.
A senior banker told dna, "The government wants to revive the economy. So stalled projects will be the main agenda. Bad loans (NPAs) and profitability will be the other big agendas on the table."
One segment with a large number (and total worth) of stalled projects in both public and private sectors is electricity. According to the economic survey, at the end of third quarter ended December 31, 2014, 80 projects were stalled in the electricity sector of which 75 are in generation and 5 in distribution, and 54 of these 80 are in fact private projects. All the projects in electricity under the private category are actually public-private partnerships, which affects the public sector directly.
The other critical area of discussion will be the problem of bad debt that continues to rise for banks. The total aggregate bad loans with the banking sector at the end of the third quarter is close to Rs 2.5 lakh crore. Banking chiefs will have to give details of the bad loans and methods of controlling the bad debt.
The finance ministry is also expected to push banks to finance non-renewable sources of energy as part of its green initiative financing. Funding for non-renewable energy initiatives is now considered as priority sector lending.
The priority sector lending ambit, which had been expanded to include lending to medium enterprises, sanitation and renewable energy sectors, is also on the agenda for discussion, according to bankers. While the total bank credit to the priority sector is retained at 40%, the government is of the view that India's investment has been much below potential over the last few years. According to bankers, the ministry is worried about large number of stalled projects.
In terms of share in total, electricity and services dominate for both public and private sectors, while manufacturing forms the major component of stalled projects in the private sector, according to the Economic Survey released last week.
"The RBI is making efforts to get banks to recognise their bad loan problems and address them. But the impact of these initiatives has so far been limited. The total number of stalled projects remains extraordinarily high; firm profitability, especially for firms working in the infrastructure sector, remains low. So, questions on the pace and strength of recovery of private sector investment remain open," said the Survey.
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