NTPC, SAIL not keen on acquiring stressed assets
Despite the prodding from finance minister Arun Jaitley, PSUs such as NTPC and Steel Authority of India (SAIL) remain reluctant to take over stressed steel and power projects as state-owned banks’ bad loans continue to pile up, adding to the government’s worries.
According to the Reserve Bank of India (RBI), the steel sector has the highest share of bad loans, followed by the power industry. Industry sources said private steel producers like Electrosteel, Essar Steel, Jindal Steel and Power, Bhushan Steel, Bhushan Power and Steel and Uttam Galva Group, which have taken huge loans from public sector banks, are under tremendous financial stress and there is a serious doubt if their existing promoters would be able to repay loans.
In the power sector, more than 40,000mw generation capacity built by private players, including Adani Power, Lanco Power and Tata Power, is facing viability issues in the absence of power purchase agreements or due to lack of fuel linkage or because of developers’ inability to pass on increased fuel costs to customers, according to the Association of Power Producers (APP).

Public sector banks have a huge exposure to these power projects as well. If banks do not recover loans from steel and power sectors, their NPAs could spike. That is what has the government is worried about.
Sending out a strong message to corporate loan defaulters, Jaitley had in October asked NTPC and to explore the possibility of assuming control of some stressed projects in their respective sectors, as existing promoters were lax or unable to repay debt.
The finance ministry advised this extreme step after several debt restructuring plans implemented by banks proved ineffectual in reviving these stalled projects.
But neither NTPC nor SAIL has so far made any headway in this direction. An official in NTPC told Financial Chronicle that it is not feasible for the company to acquire stressed private power projects, as their valuations are way too high.
There is also the risk of the government auditor raising issues over valuations, the official added.
That apart, the PSU has drawn up Rs 30,000-crore-expansion plan for 2016-17 and to fund that, it needs money, the official stated.
So far as SAIL is conce­rned, its financial performance has dropped significantly in recent years due to tough market conditions. The company reported a net loss of over Rs 4,000 crore in 2015-16.The PSU continues to remain in the red.
“Even public sector has its own expansion plans and hence acquiring and managing stressed steel business may be an additional challenge that it does not want to take upon itself in view of its own struggle to turn profitable,” Anjani Agrawal, global steel leader, EY, told FC.
Salil Garg, director at In­d­ia Ratings & Research, agr­e­ed with Agrawal’s asse­s­s­m­ent. “The government
m­o­­­ve to ask state-owned firms to explore the possibility of taking over stuck steel, power projects may not yield significant results as PSUs have their own capex plans to fund, leaving a limited balancesheet room,” he said.
With big projects stuck, state-owned banks’ bad loans continue to rise. The RBI has warned in its latest FSR that under its baseline scenario, PSBs’ gross non-performing asset ratio may increase to 12.5 per cent in March 2017 and then to 12.9 per cent in March 2018 from 11.8 per cent in September 2016.
Noor Mohammad
Subhash Narayan