A few more loans to power projects will see FIs hit the ceiling. The RBI ceiling ensures that FIs put their eggs in different baskets. The prudential measure is intended to keep FIs out of trouble: a cyclical downturn in an industry's fortunes could saddle term-lenders with high NPAs. The trouble is that 15 per cent of FIs' assets does not amount to much: Rs 12,500 crore in the case of IDBI and a like amount in ICICI. (IFCI is not into new power loans). But the new private generators need much more.

The Ninth Plan projects new power capacity in the private sector at 17,600 MW, estimated to cost over Rs 51,000 crore; net of equity finance, the required debt funding will exceed FIs' prudential ceiling. Oncurrent reckoning, only a half of the new power capacity in the private sector will be established by 2002, the terminal year of the Ninth Plan.

There are many reasons for the likely shortfall, including tardy power tariff reform, but the key is inadequate availability of finance. It may appear that the 15-per cent ceiling is low, and is therefore an investment-retardant. Actually it is on the high side and should be brought down to 10 per cent or less: only then will lenders have a diversified portfolio. The problem is that FIs have not expanded their aggregate assets rapidly enough during the last four years of investment recession; 15 per cent of their small asset base provides only chicken feed to the power sector. This may well force Indian promoters to sell their equity to foreign co-promoters willing to bring in funds to make good the shortfall in the availability of funds from FIs.

Faced with the ceiling -- and the prospect of it being lowered -- FIs have sought to take the securitisation route,that is, convert their power loans into salable paper. This requires the final holder of the paper to bear all the risks - of default, non-payment of interest and principal, etc. But in the case of ICICI, for example, the buyer of securitised loans does not bear the risks; he will have recourse to the concerned FI. The risks attached to the securitised loans thus remain on the FIs' books. Recourse to such securitisation will not reduce FIs' exposure to power; this will not enable them to extend fresh loans without violating the 15 per cent ceiling.

Securitised loans, with the buyer taking all risks, will have to be sold at a discount. But the FIs can hardly be expected to take a loss. In short, power development is slated to be constrained by a shortage of funds.