1. Fearing NPAs, banks shun renewable energy companies; here are reasons why that is

Fearing NPAs, banks shun renewable energy companies; here are reasons why that is

Lenders are worried about the drop in tariff in the renewable power sector and are increasingly becoming more cautious in lending to the sector on fears their loans could turn into non-performing assets (NPAs), bankers said.

Mumbai | Published: September 13, 2017 3:36 AM
NPA, renewable energy companies, action on renewable energy companies The tariff for renewable energy like solar power and wind power has fallen drastically in the recent years, hurting the finances of renewable energy companies. (Reuters)

By- Shamik Paul 

Lenders are worried about the drop in tariff in the renewable power sector and are increasingly becoming more cautious in lending to the sector on fears their loans could turn into non-performing assets (NPAs), bankers said. The tariff for renewable energy like solar power and wind power has fallen drastically in the recent years, hurting the finances of renewable energy companies. Bankers are worried that these companies might not be able to service their loans, given that their earnings have been squeezed.

Weak financial health of state-owned power distribution companies, the key customers of most of the renewable projects, is another key concern since it often leads to delays in payments.

The solar power tariff in has fallen to Rs 2.4 per kilowatt hours in 2017, from around Rs 12 per kilowatt hours in 2012, while wind power tariff has fallen to Rs 3.46 kilowatt hours from as high as Rs 5.9 kilowatt hours earlier.

“We are very cautious on the renewable sector and we have stopped disbursing new loans to the renewable energy companies,” a senior official at the State Bank of India said on conditions of anonymity. “There is a chance of the existing loans to the sector turning into NPAs. The next round of NPAs will come from this sector.”

The official said that the overall power sector is likely to be under pressure for at least the next two years.

As of June 30, the State Bank of India’s outstanding to the power sector was Rs 1.71 lakh crore, about 10.170% of the total outstanding, data from the latest analyst presentation showed. For the bank, 95% of its corporate slippages is from the watch list. As of June, the amount outstanding to the power sector was `10,531 crore in the bank’s watch list.

“The caution is not uncalled for. The renewable companies have been bidding very aggressively. Due diligence is required even for the future bids,” said Vivek Sharma, senior director, CRISIL Infrastructure Advisory.

“Because of the aggressive bids, they have very little legroom, both in terms of the capital cost assumption as well as the efficiency of the equipment. There are some concerns over the efficiency of the China-made modules and the cost of modules have actually gone up in the last six, months contrary to expectations, which is creating additional pressure,” he added.

In its latest annual report, the Reserve Bank of India said the power sector, which accounts for about 58% of the outstanding credit to infrastructure, has been facing hurdles like stalled projects, operational inefficiencies and high outstanding debt.

  1. S
    Shibu
    Sep 15, 2017 at 1:19 am
    Naive in this but just few suggestions, Pumping money into the banking system won't make the NPAs functional. Selling to agencies / interested parties is an option For metal and mining -- government can stop / control the import of those metal and mineral for few months, so that the produce is consumed by local market. -- government can buy the metals / minerals at little lower cost for its own projects For engineering and construction -- Maybe the projects are just stalled due of lack of little extra credit. Restructuring (increasing the time line) might help in making them functional. For Power -- It the tarrif / bids have come down and the project is in running phase, Interest rates can be re-negotiated / lowered a bit. For Pharma -- Control the import of similar drugs
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