NPA Risk for Banks and NBFCs
NPA Risk for Banks and NBFCs May Surge Amid Delays in 40% of Infrastructure Projects
A recent report by the Ministry of Statistics and Programme Implementation highlights the concerning delay in nearly 40% of infrastructure projects, resulting in a staggering cost overrun of Rs 5 trillion. Among the 1,873 infrastructure projects, valued at Rs 26.9 trillion, a substantial 779 projects are facing delays, pushing the total project cost to Rs 31.9 trillion, marking a 19% increase.
Such delays, coupled with escalating costs, pose significant challenges for lenders, as emphasized by a senior official from a public sector bank. Timely completion of these projects is crucial for generating cash flows necessary for loan repayments.
The Reserve Bank of India (RBI) has taken note of these challenges, proposing draft guidelines for project finance. These guidelines entail provisioning up to 5% for project loans during the construction phase, gradually decreasing as the project becomes operational.
Despite the growing NPA concerns, bank loans to the construction and infrastructure sectors have surged by 30% in the past five years, reaching `14.6 trillion in March this year from `10.8 trillion in January 2019. Loans to the construction sector alone have increased by nearly 26%, while loans to the infrastructure sector have seen a 31% rise during the same period.
However, the analysis reveals that 51 projects, experiencing significant time and cost overruns, contribute to a substantial portion of the total overrun. These projects require special monitoring by the respective administrative ministries to mitigate risks and ensure timely completion.
