A group of public sector lenders led by State Bank of India are considering an Asset Reconstruction Company (ARC) for stressed thermal power projects, two people directly involved in the deliberations told CNBC-TV18. The entity to manage these stressed assets is proposed to be named ‘SPARC’, or Stressed Power Asset Reconstruction Company, said people in the know.

An ARC is a specialized financial institution that buys the bad loans from banks and financial institutions at a discount to the face value. This helps banks and financial institutions clean their balance sheets and focus on their core activity of lending.

State-run lenders including SBI, REC Limited, Power Finance Corporation (PFC) Limited, along with National Thermal Power Corporation (NTPC) Limited and Power Grid are expected to participate in the setting up and the running of SPARC, sources said. Lenders also intend to approach Life Insurance Corporation as well to participate in SPARC once the structure is finalised. The proposal, however, is still in the conceptual stage, and has yet to be firmed up, said one of the people quoted earlier.

“We have identified 10 large (power) projects that have almost Rs 1.20 lakh crores of outstanding debt and a net book value of about Rs 50,000 crores which can be housed under this ARC,” said a person familiar with the discussions. This person added that the ARC could be set up with an initial corpus of Rs 7,000-8,000 crores.

“Each player may put in a maximum of 15-20 percent equity for now, we are still deliberating the contours,” said another person in the know.

Lenders do not intend to reach out to the government for any capital support this time, unlike in the ‘Bad Bank’ proposal submitted earlier this year which did not find favour with North Block.

“When it comes to turnaround professionals, who better than NTPC to be handling thermal power plants,” said one of the persons involved when asked if any professional stressed assets managers or turnaround professionals will be engaged to manage these assets. He added that for now at least, no such professionals are expected to participate.

Stressed power projects form a large chunk of the system-wide non-performing assets for Indian banks. In 2018, a Parliamentary Standing Committee had identified at least 34 power projects that were stressed, with over 40,000 MW generation capacity and a total debt of approximately Rs 1.80 lakh crores. This debt has since ballooned, with only a handful of projects like Prayagraj Power, Lanco Teesta , Rattan India finding resolutions.

First Published:Jul 16, 2020 11:08 AM IST