By Accommodation Times News Service
Banks are currently allowed to fund cost overruns up to 10% of the original total project cost.
The government is likely to ask the Reserve Bank to provide more funds for road projects that are facing cost overruns due to delays, a move aimed at reviving languishing projects worth over Rs 30,000 crore. Banks are currently allowed to fund cost overruns up to 10% of the original total project cost.
The issue was discussed by the road transport and highways ministry with the Department of Financial Services and bankers in a meeting last week that was also attended by road transport and highways minister Nitin Gadkari and Finance Minister Arun Jaitley.
“Concessionaires weren’t able to handle these projects stuck due to various reasons. Once operationalised, these projects will start generating toll income. So banks shouldn’t have any reluctance in financing these projects,” said a senior road ministry official, who was present at the meeting.
Last year, the cabinet had approved one-time fund infusion into languishing public-private partnership projects by the National Highways Authority of India (NHAI). But the infusion can only be done only in cases where 50% work on the project is completed.
In most of the 14 projects that are stuck now, the work completed is fewer than 50%. Besides, NHAI claims that it will have the first charge on toll revenues, whereas the banks contesting this. “We had around 21 languishing projects. Last week, after our meeting with bankers and concessionaires, we were able to sort out seven projects. Terminating the remaining projects due to funds shortage is no solution. We are looking for more innovative ways to get them on track,” road transport and highways minister Nitin Gadkari told.
The government could also ask RBI to ease norms for non-performing assets in case of bank loans for highway projects. Banks and the road ministry are on the same page. The Department of Financial Services is expected to take up the matter with RBI soon. Bank loans should not be classified as NPAs if the project fails to start operations in two years of its scheduled time, said the official cited earlier.
The main reason for delay in completion of road projects is attributed to problems in land acquisition, shifting of local utilities and procurement of environment clearances. When the NDA government took over there were 384 stuck projects worth Rs 3 lakh crore. The government terminated 41 and was able to resolve the rest barring 14.