Why did banks ‘over-finance’ road projects, asks Parliamentary panel

SBI submitted before the committee that the projects may be approved only after ensuring 90 per cent of land acquisition is completed.

Observing that loan disbursed by banks in excess of an estimated project cost is “strange”, a parliamentary panel has expressed concern over a large chunk of about Rs 75,000 crore of loans extended to the road sector turning bad. In particular, the panel has raised questions about huge loans advanced to Jaypee Infratech turning into NPAs.

“Some of the banks have given information on total loan (Rs 74,088 crore) given to the road sector… for IDBI, the NPA percentage is as high as 52 per cent of loan disbursed for the road sector. The committee wants to know the reason why this huge amount has become NPA, that too to a single concessionaire, Jaypee Infratech Ltd,” the panel chaired by Kanwar Deep Singh said in its latest report.

Seeking full details of the project awarded to Jaypee, the 33-member standing committee on transport further observed that State Bank of India has lent Rs 19,502 crore out of which Rs 1,986 crore has slipped into NPAs. SBI submitted before the committee that the projects may be approved only after ensuring 90 per cent of land acquisition is completed.

The panel said, “The committee finds it strange as to how the concessionaire who has got a project for Rs 1,000 crore gets Rs 1,400 crore for the same project.” It also asked: “Why the concessionaire has been given a free hand to get the bank’s loan as per their wish?” It instructed NHAI to keep a watch on the excess loan amount obtained by the developer.

Incidentally, former road transport and highways secretary Vijay Chhibber has remarked that aggressive lending by banks which were “happily over-financing even non-serious highway players without assessing risks has virtually killed the sector”.

He told media, “The concessionaires and bankers are not realising that we are reaching a stage of impatience, and people who are users of these roads are not going to be waiting anymore.” Projecting that total NPAs of Rs 2.6 lakh crore may go up to Rs 4 lakh crore because of defaults, the panel recommended that banks be empowered more to make recovery of bad debt.

Asking the government to consider empowering the banks adequately to make recovery of bad debt easier, it said, “For example, in the case of a default, the banks may be allowed to take over the entire company.”

It also noted SBI’s contention that all approvals from statutory authorities and clearances from government agencies should be obtained before a particular project is sent for bidding. “Another area of discord is the project cost estimated by NHAI and the concessionaires, which results in lending delay by financial institutions,” the committee said.

IDBI Bank revamp: Government keen to bring large investors on board

NEW DELHI: The government is trying to get at least two large institutional investors to buy stake in state-run IDBI Bank, a move aimed at transforming the lender along the lines of private sector rival Axis Bank. "Initial discussions have been held with some players who evinced interest," a senior government official said on condition of anonymity. 

"The government has already shown its intent in transforming the bank and is open to offering board seats to such investors." In his 2016-17 Budget speech, Finance Minister Arun Jaitley had said that IDBI Bank's transformation process has already begun. 

"Government will take it forward and also consider the option of reducing its stake to below 50%," he had said. The public sector lender has taken an approval for a qualified institutional placement (QIP) of Rs 3,771 crore.

"Now that banks are coming clean on their bad loans, there will be more interest from investors, as they will have a clear assessment of the bank's financials," said the official quoted earlier. Shares of IDBI Bank have been trading firm in anticipation of this transformation. They gained 1.12% in intra-day trade on the Bombay Stock Exchange on Friday, before shedding some of the gains to close the day 0.75% up at Rs 67.15. 

ET had earlier reported that the government is in talks with World Bank Group member, International Finance Corporation, for selling up to 15% stake in the lender. "There are a few players. It is too early to discuss names," the official added. Minister of State for Finance Jayant Sinha had also told ET that the government is willing to give a strategic role to investors. 

"Depending on who the investors are and what stake they are willing to subscribe for, we are willing to discuss for them playing a more strategic role, which would potentially include a board seat as well," he had said. IDBI Bank had reported a net loss of Rs 2,183.68 crore, the largest ever by an Indian lender, for the quarter to December. Its gross non-performing assets (NPAs) rose to 8.94% of the gross advances at the end of December from 6.92% at the end of the September quarter. 

A senior executive at the bank said they are in touch with the finance ministry over their proposed QIP offer. "We have already conducted roadshows, the finance ministry is fully supportive of the bank's capital raising plans," he said, adding that the bank is considering a range of options to augment its capital base. "The QIP will be launched depending on the need and market conditions." 

Last month, IDBI Bank approved the proposal for preferential issue of capital to Life Insurance Corporation of India, aggregating up to Rs 1,500 crore. The government has committed.`25,000 crore towards capital allocation in state-run lenders this fiscal. Gross NPAs at state-run banks surged to 7.3% of advances at the end of December, almost double of 3.84% at the end of March 2013.

Sun Capital

IDBI Federal Life Insurance buys office space worth Rs 111 cr in Marathon Futurex

In one of the major office space transaction, IDBI Federal Life Insurance Company Limited has bought commercial space worth over Rs 111 crore at Marathon Futurex in Lower Parel in Mumbai. The company has acquired around 61,720 sq ft office space spread over two floors at the IGBC’s Gold rated Green Building. The deal was registered last week after completion of all formalities.

The 450 employees of IDBI Federal Life Insurance will occupy the offices on 22nd and 23rd floors of the tower. The deal works out at around Rs 18000 per sq ft and falls within the ongoing property rates for outright transactions. Rates in Lower Parel are in the range of Rs 18,000-20,000 per sq ft based on the profile and facilities offered in commercial complexes here.

Mr.Mayur Shah, Managing Director, Marathon Group said, “This is one of the biggest commercial realty deals in the recent time which instills the hope that commercial real estate is on track.”


He added, “Among the biggest commercial real estate deals that have taken place in last couple of months, maximum deals have taken place in Marathon Futurex in Lower Parel. The reason is the distance of railway stations from the iconic building and the gold rated green building with amenities and facilities that are at par with international standards. With increasing standards Indian corporate houses and entry of multinationals, Marathon Futurex is the apt office space solutions for these companies.”

Sun Capital