Lending to Discoms: Power ministry wants RBI to direct banks to follow strict norms

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August 28, 2021 3:00 AM

According to sources, discoms’ outstanding borrowings were to the tune of Rs 5 lakh crore as at end-FY20, and more than a fifth of this is in the form of state government loans.

The ‘Praapti’ portal shows overdues of renewable energy players from MP discoms to have spiralled to Rs 1,323 crore as of end-July from Rs 537 crore a year ago.The ‘Praapti’ portal shows overdues of renewable energy players from MP discoms to have spiralled to Rs 1,323 crore as of end-July from Rs 537 crore a year ago.

With the loss-making power distribution companies (discoms) being a sticky burden on government finances as they need recurrent bailout packages, the Union government is leaving no stone unturned when it comes to ensuring the latest package to salvage these entities doesn’t falter on their financial indiscipline and operational laxity.

The Union power ministry is planning to ask the Reserve Bank of India (RBI) to direct public sector banks (PSBs) follow strict prudential norms when it comes to lending to discoms, power secretary Alok Kumar said on Friday. Prudential norms for PFC-REC —the principal sources of loans for the discoms — have already been tightened, and the public sector banks will be made to follow similar standards.

According to sources, discoms’ outstanding borrowings were to the tune of Rs 5 lakh crore as at end-FY20, and more than a fifth of this is in the form of state government loans.

Union power minister RK Singh had earlier told FE that, “under the revised norms, discoms will be able to get fresh loans from PFC-REC only if they chart a trajectory for loss reduction which is approved by their respective state governments and also the Union power ministry”.

There is also a plan to include representatives from PFC-REC on the boards of the discoms to which the exposure of the sector-specific lenders is large, Kumar said while addressing a workshop on the latest discom scheme organised by the India Energy Forum.

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.

The new bailout scheme for discoms hinges a lot on private investments in distribution infrastructure. For the scheme to be implemented in the five years to FY26, the Centre will fork out Rs 97,631 crore, and the balance funds have to harnessed by the discoms via assorted means, including borrowings, but ideally through public-private partnership mode ventures.

The last bid to revive the loss-making, debt-ridden discoms through the so-called UDAY scheme launched in November 2015 failed to achieve the goals after showing some initial promise in inculcating discipline in the discoms’ operations. The UDAY programme had targetted to bring down the aggregate technical and commercial losses (AT&C) of discoms to 15% by FY19 end, but that was not to be. AT&C losses now stand at 21% and the latest scheme aims to bring it down to 12-15% by FY25.

The losses of discoms had increased from Rs 48,619 crore in FY16 to Rs 61,360 crore in FY19. Power minister RK Singh has said that the losses were down 38% on year at around Rs 38,000 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”.

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