The bailout of state electricity boards (SEBs) by public sector banks (PSBs) seems to have begun. Soon after Punjab National Bank (PNB) restructured a loan to the Tamil Nadu Electricity Board, Bank of India (BoI) said on Tuesday that a few SEBs had requested that their loans be restructured. ?Certain SEBs have asked that their loans be restructured and the bank will take action in due course,? CMD Alok Mishra said after the state-owned bank announced a 20% fall in net profit for the September quarter to R491.11 crore.
The requests are understood to have come from Tamil Nadu (R500 crore) and Rajasthan (R700 crore). BoI, which has a total exposure of R8,000 crore to the power sector, said it did not have slippages on power sector loans. Gross NPAs for the bank rose to 3.2% at the end of September from 2.7% at the end of June, compelling it to raise provisions by 103.5% sequentially to R1,154 crore.
Early November, PNB restructured a short-term loan to TNEB, making it repayable over five years. However, the bank did not offer a moratorium nor did it take a haircut on interest rates. PNB?s exposure to TNEB is R1,750 crore while the exposure to private sector power firms is R400 crore. Between April and September, PNB restructured just over R2,100 crore loans to the power sector and R650 crore to the steel sector. In the September quarter, net non-performing loans at PNB were up 47% or by R2,000 crore y-o-y.
Crisil recently raised concerns that R56,000 crore of loans to the power sector could be at risk unless reforms are speeded up in 12-18 months. The amount accounts for 12% of loans to the sector at R4.8 lakh crore. Out of this, banks have lent around R3 lakh crore while lenders like PFC and Rural Electrification Corporation have extended the rest. Out of the exposure, state utilities have borrowed R3 lakh crore.
Analysts point out that in the September quarter, pressure on the quality of assets at state-owned banks was exacerbated partly by their transition to an automated platform, which is now complete. However, CLSA said in a report: ?We expect asset quality pressure for PSU banks to stay due to higher exposure to risky segments such as SMEs and power.? Among banks with a large exposure to the power sector is Canara Bank with loans of Rs 20,500 crore, of which Rs 12,400 crore were made to SEBs.
Analysts point out that at 8% of loans, PNB?s restructured assets are not only high, but also ongoing: cumulative restructuring in the last 18 months has been 3.1% of total loans compared with an average of 1.3% for its peer group. What is of greater concern, as Citigroup points out, is that of all restructured loans, 11% has slipped to NPLs so far. ?A vintage analysis shows slippages increase rapidly with age ? 28% slippage from loans restructured in FY09 versus 5% from those in FY11 ? which suggests continued caution ahead,? a report from the brokerage noted.
PSU banks are already in a spot with the slowing economy hurting several sectors including textiles and SMEs. Most of them have reported higher non-performing assets or an increase in restructured loans in the three months to September. At Oriental Bank of Commerce, the rise in gross NPAs was 114% y-o-y in the September quarter while at Union Bank and Corporation Bank, they rose 46% y-o-y. Crisil has said power assets could deteriorate because of the rising debt levels and losses at state utilities, including distribution companies. The shortage of fuel, the rating agency has pointed out, could hurt the viability of nearly a third of the 56,000 MW of thermal generation capacity being set up currently.