Press Trust of India
New Delhi, Oct 11: As the roads and highways sector grapples with a massive problem of funds going bad, the role of banks have come under scrutiny for “happily over-financing” a large number of projects without necessary due diligence and thus creating a ‘scam-like’ situation. Turning the tables on banks that have been seeking the government’s help to address high NPAs in this key sector of the economy, a top bureaucrat said that the lenders are also to be blamed for this problem and there are nearly 70 projects that have got funding at escalated costs.
The remarks assume significance as the highways sector is struggling to roll out stuck projects worth Rs 3.8 lakh crore but the developers in many cases are now shying away. “How is it that in so many cases they (banks) agreed to such higher amounts of escalated costs… It happened in such a large number of projects that I think scam is one way to define,” Road Transport and Highways Secretary Vijay Chhibber told PTI in an interview. “A large number of projects have been over-financed,” he added.
After steel sector, roads account for the second largest amount of bad loans for the banking sector. Chhibber further said that the problem has been further compounded because banks released large upfront amounts to the developers who used the money in other sectors without worrying about delays in the road projects. “Even if they were doing this (over-financing) and if roads would have been built we would have had no grouse as financing is really their business. “But in many projects we find that banks agreed to a much higher lending and the upfront amount released was so large that right from the first tranches onwards, the money was pulled out of the escrow. Then the concessionaires were just not worried about two years delay or three years delay as money was handed to them and they used it in some other sectors,” Chhibber said.
A recent Crisil study showed that nearly half of the road projects being constructed under the build, operate and transfer model with a sanctioned debt of Rs 45,900 crore are at a high risk of not being completed. Referring to this study, Chhibber said the fact is “a lot of bankers would be coming and saying that we need to change our system and our policies as some of them are in distress”. “But when we analyse what they are saying, we are finding that the real problem has emerged because of excessive flow of cash in projects beyond what we had assessed the cost,” he added. “You are going to kill it (the project) on the day one because if the concessionaire does not have good intentions, he will pull out his money in the first tranche,” he said. Giving details, Chhibber said a list of 94 projects have been forwarded to the Banking Secretary, out of which about 70 projects had higher project cost that what was estimated by the National Highways Authority of India (NHAI).
Questioning the risk-assessment systems of the banks, the senior IAS officer said the basis question that a banker needs to ask before providing funds at escalated costs is why the builders themselves did not red-flag the original costing at the time of bidding. “These are risky projects… They should have done due diligence,” Chhibber said, while wondering how the variations could be 70-80 per cent to the costs estimated by the NHAI.
