1. SEBs are wilful defaulters: Banks could see Rs 3-4 lakh crore NPAs

SEBs are wilful defaulters: Banks could see Rs 3-4 lakh crore NPAs

It's possible there could be a bailout of sorts such that SEBs don’t need to repay their loans immediately.

By: | Updated: September 15, 2015 9:30 AM
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The total exposure of state-owned banks to SEBs currently is 3.4% of their total loans or roughly Rs 1.6 lakh crore of which around Rs 72,000 crore or 46% has been restructured. (Reuters)

Much is being made of the thousands of crores of non-performing assets (NPAs) piling up in the corporate sector but little is being said about the debt or the losses of of state electricity boards (SEBs); at the last count in March, 2013, losses were close to Rs 3 lakh crore but would have moved closer to Rs 4 lakh crore by now.

Media reports suggest SEB dues may be ‘frozen’ though what exactly this means is not clear. It’s possible there could be a bailout of sorts such that SEBs don’t need to repay their loans immediately. That would be a huge blow to the banks because the Reserve Bank of India (RBI) does not appear to be in the mood for any more forbearance. That means banks cannot restructure the loans without classifying them as NPAs and if these are categorised as NPAs, their balance sheets will look awful. If SEBs default, as they could well do given how bankrupt they are, banks will be in big trouble.

The fact is that most state governments – including those that signed on for the FRP – have not raised tariffs adequately enough thereby allowing the cost of procuring power to overshoot revenues. In a sense, this makes them wilful defaulters because they do have the ability to ‘pay’ but aren’t doing so because it suits them not to appear unpopular with voters. That approach has to change but it won’t unless they are asked to pay their bills which is why there cannot be a bailout of any kind. On the contrary the government must, appropriate funds from their share of revenue transfers, and pass it on to the banks. The total exposure of state-owned banks to SEBs currently is 3.4% of their total loans or roughly Rs 1.6 lakh crore of which around Rs 72,000 crore or 46% has been restructured. For a small bank like Dena Bank it is 9% of its loan portfolio, while for Central Bank it is 9.4%, dangerously high.

In fact, banks’ overall exposure to the power sector is dangerously high at close to 10%. The fact is the government has not been able to convince even the Bharatiya Janata Party-ruled (BJP) states such as Rajasthan to raise tariffs adequately; the Rajasthan SEB alone contributes a staggering Rs 80,000 crore and owes lenders some Rs 60,000 crore. A couple of state governments have asked for more lenient repayment terms than those specified in the FRP saying a moratorium of two years was too short; some have asked for interest concessions. None of this can be agreed to because it’s clear from the way the FRP has progressed that states do not keep their word. Also, extending the FRBM is a bad idea; if the Centre is to be subject to fiscal discipline, so must the states. Since states are now getting a much bigger share of revenues they need to foot their bills.

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    Shrinivasa Kamath
    Sep 14, 2015 at 9:52 pm
    It looks like an emergency situation. Centre should act now. It should allocate certain portion of increased funds to clear PSB loans. States should be made to see reason and made to increase the tariffs to reasonable level while simultaneously bringing down line losses. This appears to be the only way.
    Reply
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      Nitin Nimkar
      Sep 15, 2015 at 6:54 am
      Many of these woos were sorted out by Suresh Parbhu when he was Power Minister in Vajpayee Government when they brought new Electricity act. But it was Congress which ed all these efforts first in Andhra Pradesh to throw away Chandrababu Naidu from the power. Similarly, the same game was pla by Congress in Maharashtra, Rajasthan and various other states to grab power. You media have always forgotten these sins of Congress. Now after disastrous rule of 10 years by UPA, the situation is going out of control. Even then you are not highlighting these facts and presenting only the financial part and not the politics behind it.
      Reply
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        oldtimer
        Sep 15, 2015 at 12:28 pm
        Who control the SEB? Politicians. These boards are source of funds for them. It does not benefit any politician to repay these loans
        Reply

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