Rs 5,000 Crore Investments By Banks, Fis Stuck

More than Rs 5,000 crore, invested in companies by domestic financial institutions and banks, is stuck for want of an additional investment of not more than Rs 500 crore.

FI sources said some of these non-performing assets could be nurtured back to health with a nominal infusion of fresh assistance but such restructuring had been held up for a variety of reasons.

Said a senior FI official, "In some of these companies, the institutions are not even able to arrive at a consensus on putting in additional investments of around Rs 1 crore to pay the insurance premium."

Additional investments of around Rs 500 crore, across various industries, are needed to save these projects from becoming total write-offs.

In some of these projects the promoters have washed their hands off as they are not able to bring in additional investments. The onus is now on the institutions to save the money which has already been invested, the FI official said, adding that the insurance companies--LIC and GIC --are not able to bring in additional funds because of the investment guidelines issued by their regulators.

"Some of the other institutions are facing a liquidity problem themselves, and the unit Trust of India (UTI) has stopped all project finance for some time now," he added.

Says an official of one of these institutions, "Regulators have taken a view that the public's money should not be used for funding projects which have already turned into an NPA."

Institutions which are willing to invest, however, do not want to share in the additional investment burden of the other institutions. "We do not want to increase our share in these accounts. These institutions have to decide whether to go in for additional investments or allow their investments to go down the drain. They will have to speak to their regulators to sort out the problem," said another official at a financial institution.

The other problem which the institutions confront is the lack of consensus among the institutions. "Projects require funding at the right time. If there is a delay, the whole project gets wasted. In many cases, there are also instances of a consensus among the different institutions not having been arrived at, thus delaying the infusion of funds."

The major industry which has been affected by all this is the iron and steel sector. The FI's decision to take over the management of both Malvika Steel and Bellary Steels & Alloys came a cropper because some of the FIs did not want to bring in additional funds. Each of the ailing steel companies needs only Rs 30 crore to Rs 40 crore to restart their plants after paying off statutory dues to employees.