Up Govt Gets Breather On Rs 380cr Hudco Loans

Default penalty on loans to two civic bodies to be turned into interest-free loans as part of a loan rescheduling package

The Uttar Pradesh government has agreed to a rigorous rescheduling package on loans made by Hudco to two of its development authorities the Meerut Development Authority and the Ghaziabad Development Authority.

Official sources said here yesterday that Hudco had refused to waive the default penalties on the loans as sought by the state government.

Instead, after protracted negotiations Hudco agreed to convert the outstanding penalties into interest-free loan, the sources added. Hudco was forced to reschedule the loans after it found that recovery of loans made to these development authorities involved walking into a legal minefield, the sources said. Under the terms of the fresh agreement, Hudco has formed a task force to monitor the revenue flows into these two development authorities, on which it will have the first charge.

 

It will also monitor the sales of housing blocks made by these two authorities. Under the revised terms, the loans will now carry a rate of 16.5 per cent for the next five years.

Hudco had initially invoked the state government guarantees after these development authorities defaulted on principal and interest payments of Rs 380 crore.

Hudco was forced to invoke the guarantee to safeguard the classification of its assets.

The invocation of the guarantee had also enabled the institution to treat these overdue payments as non performing assets.

The sources said that although there was a clause in the original agreement, whereby the state government was obliged to meet the dues of the institution, it had not done so. Consequently, the state government guarantee was invoked .

However, it had found that guarantee was difficult to enforce, in view of the difficult fiscal situation of the state government, the sources said.

Hudco also found that it was not in a position to preempt fiscal transfers to the development authorities.

This was unlike a sovereign guarantee where fiscal transfers could be preempted to meet the liabilities of the creditors.

The rescheduling has also favoured Hudco since it would have been forced to treat the overdues as non performing assets under the revised accounting norms prescribed by the National Housing Bank and the Reserve Bank of India

Hudco is not the only one which has had problems with the state government.

Other public sector undertakings like the National Thermal Power Corporation (NTPC) have also had problems with recovering payments from the Uttar Pradesh state government.

Even nationalised banks have had the experience of defaults on state government securities though subsequent recoveries of these loans were made by intervention by the Union government and theReserve Bank through preemption of plan transfers to meet the creditors dues.