Lending to discoms: Power ministry asks SBI to follow stricter norms

Discoms’ outstanding borrowings were to the tune of Rs 5.1 lakh crore as at end-FY20, and 14.5% of this is in the form of state government loans.

“The resulting cash gaps in discoms get funded as working capital from banks and FIs in most of the cases,” the letter, reviewed by FE, stated.
“The resulting cash gaps in discoms get funded as working capital from banks and FIs in most of the cases,” the letter, reviewed by FE, stated.

The Union power ministry has asked State Bank of India (SBI) to follow strict prudential norms when it comes to lending to state-run power distribution companies (discoms), warning that unchecked lending to the financially-stressed entities can expose the bank’s loan assets to risks. In a letter to SBI chairman Dinesh Kumar Khara, power secretary Alok Kumar said that even if the loans to discoms are given against state government guarantees, the “present trend of increasing unpaid government dues and subsidy arrears will repayment of debt non-feasible in case of defaults”.

As on June-end, states had not cleared subsidies worth Rs 71,865 crore — meant for certain consumer categories (including households and farmers) but routed via the discoms. Also, government departments (civic bodies and other such institutions) owe Rs 52,059 crore to discoms. “The resulting cash gaps in discoms get funded as working capital from banks and FIs in most of the cases,” the letter, reviewed by FE, stated.

Prudential norms for PFC-REC — the principal sources of loans for the discoms — have already been tightened, and the government had said earlier that the public sector banks will also be made to follow similar standards. Discoms’ outstanding borrowings were to the tune of Rs 5.1 lakh crore as at end-FY20, and 14.5% of this is in the form of state government loans.

The losses of discoms had increased from Rs 48,619 crore in FY16 to Rs 61,079 crore in FY19. The losses were down 37.6% on year at around Rs 38,093 crore in FY20. With revenue of discoms falling in FY21, due to disruptions amid the lockdowns to contain the coronavirus, discom losses are seen to have surged to Rs 90,000 crore by some agencies. However, the power ministry has termed such estimates as “grossly inflated”.

The funding under the latest Rs 3-lakh-crore revival scheme for discoms approved by the Cabinet in June is contingent on them committing to undertake infrastructure creation such as feeder separation and replacement of old lines. The scheme also requires the state governments concerned to agree to pay subsidies on time, clear government dues and state electricity regulators to implement annual tariff revisions and create no ‘regulatory assets’ or recoverable discom expenses which regulators acknowledge as pass-through costs, but are not immediately built into tariffs.

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