The Reserve Bank of India's move to allow banks to restructure existing project loans will help companies, especially those which are behind on interest/principal repayment by 31-90 days, says Pradeep Kumar, MD, corporate banking at SBI .
He was participating in a discussion on CNBC-TV18 on the RBI decision and its benefits for companies as well as the banking sector.
Earlier, banks were allowed to restructure only those project loans sanctioned after July 15 this calendar.
According to Kumar, banks were earlier trying to restrict the tenure of the loans. The new measure will help smoothen financing of loans and is in line with existing global standards of lending, he said.
Ranjan Dhawan, ED, Bank of Baroda said the new norms will help bullet repayments (paying off principal at one go) to be refinanced. Also, extension of refinancing over longer periods will ease pressure on borrowers as well, he said. Dhawan said the non-performing asset situation on the ground was still stressful.
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Welcoming the RBI move, Madhu terdal, Group CFO of GMR said it would give the much needed boost for infrastructure projects. He said that the success of the measures would depend on the flexibility of banks. He said if Net Present Value was protected, banks could ease initial repayment norms.
Below is the verbatim transcript of Ranjan Dhawan, P Pradeep Kumar & Madhu Terdal's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Are you really going to seize this opportunity and refinance a lot of projects?
Kumar: I do not think we have to seize an opportunity, there is no end date. This is a facility given to refinance large projects, any project above Rs 500 crore exposures to the banking system. It will give lot of relief to companies which are finding it difficult to service their loans from the accruals and we will be able to term out those repayments for a longer period of time.
It will make the life much easier for all these companies and for all of us especially those companies which are either in special mention accounts (SMA) 1 or SMA 2 or close to becoming one of these two. There is no need to seize an opportunity because there is no end date.
Latha: This is useful from a banker's point of view only for the SMA 1. To explain, SMA 1 are those categories of loans where the money the has not been paid for 90 days. Those who have not paid interest for the first 30 days and it has become a 31 or 32 day those loans are categorised as SMA. Those who have not paid for 60days become SMA 2 and if you don't pay for 90 days you become non-performing assets (NPA).
However, if it is a healthy loan that is getting paid back what is for you in it to extend it? You are only increasing your exposure and your risk isn't? Would you do it?
Kumar: No, one is a life of the project. We all are aware that infrastructure project has a very long life. Earlier we were constrained with the fact because we didn't have this refinance mechanism and we didn't have long-term liabilities. We were restricting the entire tenure of the loan to about 15 years and consequently if you see the gross servicing capability would be just above 1.2 or 1.25 and in a bad year they would find it difficult.
This will enable us to smoothen the repayment period over a longer period of time and give the company some cushion and some excess cash available for any capex they may require or maintenance capex that may be required in the life of the project.
Sonia: If you can tell us what is the exact exposure that Bank of Baroda has to the infrastructure and the steel sector and with these norms getting eased will the risk of non performing loans (NPLs) go down?
Dhawan: Bank of Baroda has a fair amount of exposure in both infrastructure and steel and I would assume that this would ease the burden on the projects. Essentially what has happened is for infrastructure projects, let us say those who have life of 30 years because of asset-liabilities mismatches in our books we were normally financing them for 10-15 years. Now that if we can extend the refinancing period over a longer period of time obviously the risk of their becoming NPAs on our books reduces and that makes intuitive sense also.
Normally in the west such projects are financed through bond issues. In our country of course the bond market is not very vibrant so financial institution has to finance these projects. What essentially the Reserve Bank has done is they are saying that look if the project has already been executed and this issue has occurred, say you can fix a repayment period for 5 to 7 years and show a bullet repayment after 7 years. After 7 years whatever that bullet repayment is that can be refinanced either by yourself or by a group of lenders or you can go to the bond market. So, this would be a more realistic scenario for a project which has a long economic life.
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