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11
August 2017
The
CAG on Thursday 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 Total Investment & Insurance
Solutions
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 Total Investment & Insurance
Solutions
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 Total
Investment & Insurance Solutions
"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.The Total Investment
& Insurance Solutions
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