Discoms’ debt to hit Rs 4.5 lakh cr by FY21: CRISIL

By: |
Published: June 5, 2020 4:45 PM

The liquidity package of Rs 90,000 crore announced by the government last month offers a breather, but structural reforms have become critical to sustainability of discoms, the rating agency said in a statement.

Discoms, Discoms debts, CRISIL, COVID-19 pandemic, CRISIL Ratings,latest news on DiscomsThe package will help state power distribution companies (discoms) settle a significant portion of their overdue bills to generating companies, it said.

Power distribution utilities’ debt will hit an all-time high of Rs 4.5 lakh crore by the end of the ongoing financial year, CRISIL Ratings said on Friday. The liquidity package of Rs 90,000 crore announced by the government last month offers a breather, but structural reforms have become critical to sustainability of discoms, the rating agency said in a statement.

The package will help state power distribution companies (discoms) settle a significant portion of their overdue bills to generating companies, it said. However, it noted that with power demand weak and cash losses high amid the COVID-19 pandemic, discoms would end up owing lenders a staggering Rs 4.5 lakh crore by the end of 2020-21, or 30 per cent more than that in the last fiscal.

Such a material increase in debt would deteriorate the credit profiles of discoms and make structural reforms critical to their sustainability, a study of 34 state discoms (from 15 states), which account for over 80 per cent of India’s power demand, shows, CRISIL stated.

According to it, presently, only one in five discoms is capable of servicing debt through own cash flows and budgeted subsidies. The scenario would worsen this fiscal because of weak demand for power, which comes on the back of an already low base of last fiscal, rising costs, and losses caused by the pandemic-led lockdown, it added.

”Higher costs and constrained cash inflows amid declining demand mean the per-unit operating gap of discoms will widen to 83 paise per unit by the end of this fiscal. In other words, cash losses this fiscal may almost double to Rs 58,000 crore over last fiscal, despite higher subsidy support from state governments,” Manish Gupta, Senior Director, CRISIL Ratings said.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Low interest rate regime critical for survival of banks at this juncture: KV Kamath
2I&B ministry wants contents on OTT platforms like Netflix, Amazon Prime, Zee5, under its purview
3Economy picking up? Bankers say borrowers opting out of loan moratorium