After 2018 surge, energy sector’s NPAs decline in 2019 because of these key reasons

Published: March 8, 2020 11:37 AM

While total loan outstanding of the energy sector amounted to Rs 5,93,052 crore, State Bank of India accounted for a major share of the exposure at Rs 1,97,359 crore.

energy sector, NPAs, power sector, RBIBad loans of the energy sector spurted from just Rs 46,627 crore in September 2017 to Rs 1,22,170 crore in a year, a rise of 162 per cent.
  • George Mathew

After a big surge in non-performing assets (NPAs) of the troubled energy sector in 2018, NPAs declined in 2019, aided by a host of regulatory measures and resolution initiatives of the banking sector. Gross NPAs in the energy sector fell to Rs 1,06,908 crore as of September 2019 from Rs 1,22,170 crore in September 2018, the Reserve Bank of India (RBI) has said. In its reply to a query made by The Indian Express under the Right to Information Act, the RBI said as much as 18.03 per cent of the energy sector exposure as of September 2019 is still classified NPA, but it has fallen from 20.3 per cent in September 2018. Bad loans of the energy sector spurted from just Rs 46,627 crore in September 2017 to Rs 1,22,170 crore in a year, a rise of 162 per cent.

A loan is classified as NPA if the principal or interest or both are due for repayment for over 90 days. While total loan outstanding of the energy sector amounted to Rs 5,93,052 crore, State Bank of India accounted for a major share of the exposure at Rs 1,97,359 crore. Among other banks, Bank of Baroda has an exposure of Rs 36,588 crore, Canara Bank Rs 32,915 crore, Bank of India Rs 31,272 crore, PNB Rs 31,070 crore and HDFC Bank Rs 29,866 crore, according to the RBI data.

Banks are now wary of funding power and telecom projects. “In the case of power, whatever exposure we have, that has already been recognised. Some of the exposures in power have been recognised as NPA. Resolutions of two or three major ones will be before March 31. We are not taking fresh exposure in power. In the thermal sector, there won’t be any more exposure and, in hydel, it will be to a certain extent. This is because of the lessons we have learnt … so no exposure to both telecom and power,” said the CEO of a nationalised bank.

In June 2019, the RBI relaxed its February 12 circular on the resolution of stressed loans, after the Supreme Court termed the circular as unconstitutional. The new circular relaxed several provisions, including norms related to consent of lenders and offers more freedom to lenders in implementing the asset resolution plan. Several defaulting power projects got a temporary reprieve following this development.

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Several companies in the power, as well as the sugar and fertiliser sectors, had challenged the circular as ultra vires on the grounds that it wrongly classified them as wilful defaulters. They argued that they were stressed because of extraneous reasons beyond their control and could not be treated as wilful defaulters.

An estimated 17,000 MW of under construction power plants are classified as having been stalled for an over three-year period, indicating a huge blockage of funds. Further, there is the issue of capacity around 19,000 MW (43 per cent of total capacity) yet to ink power purchase agreements (PPAs), which is causing the stress in thermal power sectors causing economic slowdown.

As per the 37th Standing Committee Report on Energy (2017-18), of the scheduled commercial banks’ exposure of over Rs 5.9 lakh crore, power generating companies accounted for 86 per cent of the gross loans and advances. The committee had identified 34 stressed power assets, with a total exposure of Rs 1.75 lakh crore (32 per cent of total exposure in power sector).

Power projects are highly capital intensive and have a long gestation period. As a result, experts point out that completion of projects in a time-bound manner is extremely critical for developers to avoid huge time and cost overruns. In the past, thermal power projects have witnessed significant cost overruns on account of delay in receipt of clearances, land acquisition and financial closure. In certain projects, there has been cost overruns of over 65 per cent, resulting in project cost escalating to Rs 7.5 crore/MW as compared to initially envisaged Rs 4.5 crore/MW.

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