India’s largest lender, State Bank of India, has urged the Reserve Bank of India (RBI) to allow flexibility in loan repayment and restructuring exercise for power projects that are under stress due to non-availability of raw material including coal.
The Supreme Court’s recent judgement cancelling 214 coal blocks allocated since 1993 has added to the woes of such projects.
SBI chairperson Arundhati Bhattacharya is learnt to have written to the RBI, requesting that the 5:25 scheme, which allows longer loan repayment tenures for projects in infrastructure and core sectors, be extended to exisiting power projects.
A 5:25 structure allows banks to loan money to a developer for 25 years, with an option of rewriting the terms of the loan or transferring it to another bank or financial institution after five years. It is structured in a manner to allow the tenure of the loan to match the life cycle of the asset. If extended, it will provide relief to old projects that are hit by financial woes arising from delays, thereby easing bottlenecks for lenders.
The scheme was announced by finance minister Arun Jaitley in Budget 2014-15 to boost the cash-starved infrastructure sector.
“At this juncture, the power and metals industry requires a short-term relief to tide over problems of raw material shortages and weak pricing outlook… existing projects may require flexible structuring in line with the economic life of the underlying asset. The 5:25 scheme may also be allowed for existing projects,” the letter says, according to sources.
In certain cases, it points out, project loans may be allowed to be refinanced by existing lenders on one occasion without attracting the attendant restructuring provisions. This would ensure that the repayment tenure of the loan is in line with revised cash flows available for debt servicing.
Investments worth Rs 5 lakh crore are stuck in power projects due various reasons.
Following the apex court order, the government recently announced a policy to put up coal blocks for bidding by power, steel and cement companies.
A panel comprising representatives of public and private sector banks has been constituted under Santosh Nayyar, chairman, India Infrastructure Finance Company Ltd, to suggest ways of sorting out financing issues for power projects.