SBI stops loans to road projects with land trouble due to rising NPAs

September 25, 2013

By Sangita Mehta, ET Bureau |

*SBI stops loans to road projects with land trouble due to rising NPAs*

MUMBAI: State Bank of India has stopped lending to road projects that have not completed land acquisition for any part of a proposed stretch, a move aimed at stemming the spike in bad loans that has led the Chief Vigilance Commission andCentral Bureau of Investigation to urge banks to tighten their norms.”Unless you have 100% land acquired and in your possession, we will not finance the project. Earlier, we would do so with 95%,” SBIBSE 0.45 % chairmanPratip Chaudhuri told ET.

“This means that road projects will have to be capitalised on day one. If it is a single road, we will say please get 100%, otherwise we will have enough letters blaming us for financing it.”

As per the Reserve Bank of India, the state-run bank’s exposure to roads projects stood at 1.4 lakh crore in July, up 23% from the year-ago period.

Along with its associate banks, SBI, India’s biggest lender, accounts for about a fifth of the loans, prompting apprehensions that its latest move could hold up infrastructure projects that are reeling under severe funding constraints.

However, Chaudhuri clarified that the bank would consider a proposal if it came from a large state-run company.

“If it is a company like NTPCBSE 0.31 %, if they have 25 power plants and if they are starting two more, we will take a view that if these two flop the other 25 can keep the repayments going,” Chaudhuri said.

CBI director Ranjit Sinha had in August indicated that officers of public sector banksshould be made accountable for the rise in loan defaults.

His comments came amid a sharp rise in defaults and restructured loans that jointly account for 10% of the bank’s loan book. Sinha’s comments, however, evoked sharp criticism from bankers.

Subsequently, at a close-door meeting with officials of the RBI and the finance ministrya few months ago, Chaudhuri took a strong stand on banks being blamed for the rise in bad loans. “If the government and RBI continue to blame banks for rising NPAs, we will be forced to insert impossible conditions in loan covenants that will make it difficult for borrowers to avail the credit facility,” Chaudhuri said, according to a banker present at the meeting.

Bankers have been blaming the government, saying undue delays in giving clearances have led to the rise in bad loans. “Is it the banks’ failure in monitoring or is it the government’s that it has not delivered what it promised,” said a banker, who did not wish to be named.

Source-http://economictimes.indiatimes.com