Public sector banks are estimated to have restructured around R75,000 crore worth of loans to state electricity boards (SEBs), mainly the three distribution companies of Rajasthan, Uttar Pradesh and Haryana. Much of the recast has taken place in the March 2012 quarter. Of the total power sector portfolio of nearly of R5 lakh crore, Crisil estimates that approximately R3 lakh crore has been lent to state-owned utilities.
Bank of Baroda’s ( BOB) restructured loans worth R5,281 crore in the three months to March, 2012, including R2,000 crore to SEBs. Punjab National Bank restructured loans toalling R4,700 crore to SEBs as a result of which its restructured portfolio jumped to R8,600 crore. At Central Bank of India, too the restructured portfolio ballooned to nearly R8,000 crore in the March quarter, more than half of which related to loans to SEBs. Apart from the power sector, banks have recast loans to the aviation space.
Banks have gone ahead with rejigging the loans to SEBs since they are hopeful the state governments will hike tariffs shortly.
After a detailed study of the power sector, Crisil has estimated that tariffs need to be hiked by an average of 50% for state utilities to break even. However, analysts believe that while tariff increases will help bridge operating deficits, they will not be enough to repay past debts. As of now, banks have allowed the discoms a two-year moratorium period and have extended the repayment period by eight years.
Post the moratorium, banks could levy additional interest at 1.0-1.5%. ?The risk to these lenders arises primarily from potential weakening in their asset quality due to two critical issues: escalating losses and debt levels in the power distribution sector and the shortage of fuel for power generation. We estimate that the losses in the distribution segment have mounted to R350-400 billion in 2010-11, nearly doubling from 2008-09 levels,” Crisil observed.
Central Bank is the lead banker for the Jaipur discom, while BoB and PNB are leading the restructuring process for discoms in Ajmer and Jodhpur, respectively. BoB has restructured R800 crore worth of loans given to Ajmer discoms while PNB has restructured R630 crore of loans it gave to the Jodhpur discoms. The Rajasthan SEB is possibly the worst affected and banks have restructured an estimated R38,361 crore. SL Bansal, CMD, Oriental Bank of Commerce, which leads the Haryana discom consortium, said, ?The state government has committed to a revision in tariffs and has guaranteed support in case of a default. Also, the discoms are requesting the state government for a budgetary support to help improve cash flows.?
Analysts estimate another R75,000 crore worth of loans to discoms could require restructuring. Canara Bank has so far not restructured any SEB loans and could recast R5,400 crore in the June 2012 quarter.