TIL Desk/Business/New Delhi/The December edition of the Financial Stability Report (FSR) blamed banks and their lack of expertise in project finance for the current bad debt mess in the economy.
The report, released by the Reserve Bank of India (RBI) on late Thursday, and based on feedback from regulators, was very critical of public sector banks’ (PSBs’) lax project appraisal standards, which, it said, led to the high bad debt accretion. Besides, the report said, there could be conflict of interest in the whole process.
“The impairment crisis in domestic banks has also highlighted certain basic deficiencies with regard to the appraisal of long-term projects with a significant gestation time,” it said. Adding: “A significant part of such projects undertaken were consortium lending with appraisals being carried out by professional merchant bankers with built-in conflict of interest since they were paid by the borrowers.”
Banks might not have realised the exact implication of risky projects under public-private partnership (PPP) projects, which were getting implemented under high leverage.“The exact implications of such risky projects implemented through the special purpose vehicle route were sometimes not clear to bankers.
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