Nifty99000 100%

Sensex99000 100%

Article rating: No rating
Article rating: 4.8
Article rating: 5.0
Article rating: 3.0
Article rating: No rating
Article rating: 5.0
Article rating: No rating
Article rating: No rating
Article rating: 4.5
Article rating: No rating
Article rating: No rating
Article rating: 4.2
Article rating: 5.0
Article rating: 4.0
Article rating: No rating
Article rating: No rating


Two corporations flouted norms leading to bad loans: CAG

Author: IANS/Friday, August 11, 2017/Categories: Loans

Two corporations flouted norms leading to bad loans: CAG

The CAG criticised state-run Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) for sanctioning loans to independent power producers without following internal guidelines and RBI rules, leading to rise in bad loans.

"The REC and PFC did not conduct appropriate due diligence during credit appraisal and in the process assumed higher risks on the loan accounts," the Comptroller and Auditor General (CAG) said in its report tabled in the Lok Sabha.

The REC and the PFC disbursed loans of Rs 47,706.88 crore to independent power producers (IPPs) during 2013-14 and 2015-16, which were audited by the CAG.

"Non-Performing Assets (NPAs) related to IPP loans, in both companies, increased sharply to Rs 11,762.61 crore over a three-year period ending March 31, 2016," a CAG release said here.

As per the audit findings, the REC and the PFC estimated a higher tariff at the time of appraisal of loan proposals, which resulted in sanction of loans of Rs 8,662 crore in six cases "where the levelised generation cost was higher than the actual levelised tariff, rendering the viability of the project doubtful".

The CAG said the assessment of experience of project promoters was based on individual judgement, and that promoters who did not have relevant sector experience were often found eligible for loans. Many of these projects could not be completed within schedule.

"Nine projects had to be restructured multiple times, leading to increase in interest during construction by Rs 13,312.78 crore in six, and NPAs of Rs 3,038.44 crore in three loan cases," it said.

"The financial capacity of the promoters was not appropriately assessed in these cases and the promoters failed to bring in equity for the project in the face of competing demands," it added.

The REC and the PFC could not ensure end-utilisation of funds by the borrowers. The CAG found diversion of Rs 2,457.60 crore by the borrowers and promoters in five cases.

"Both the companies were solely dependent on Auditors Certificate regarding end-use of the funds, despite specific guidelines of the Reserve Bank of India in July 2013, which advised financing agencies to strengthen internal controls and credit risk management systems to enhance quality of loan portfolios," the official auditor said.

Print Rate this article:
No rating

Number of views (423)/Comments (0)

S Vijaykrishnan
S Vijaykrishnan


Other posts by IANS
Contact author

Leave a comment

Add comment



Ask the Finapolis.

I'm not a robot
Dharmendra Satpathy
Col. Sanjeev Govila (retd)
Hum Fauji Investments
The Finapolis' expert answers your queries on investments, taxation and personal finance. Want advice? Submit your Question above
Want to Invest



The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

Subscribe For Free

Get the e-paper free