Much is being made of the thousands of crores of non-performing assets (NPAs) piling up in the corporate sector but little is being said about the debt or the losses of of state electricity boards (SEBs); at the last count in March, 2013, losses were close to Rs 3 lakh crore but would have moved closer to Rs 4 lakh crore by now. Media reports suggest SEB dues may be \u2018frozen\u2019 though what exactly this means is not clear. It's possible there could be a bailout of sorts such that SEBs don\u2019t need to repay their loans immediately. That would be a huge blow to the banks because the Reserve Bank of India (RBI) does not appear to be in the mood for any more forbearance. That means banks cannot restructure the loans without classifying them as NPAs and if these are categorised as NPAs, their balance sheets will look awful. If SEBs default, as they could well do given how bankrupt they are, banks will be in big trouble. The fact is that most state governments - including those that signed on for the FRP - have not raised tariffs adequately enough thereby allowing the cost of procuring power to overshoot revenues. In a sense, this makes them wilful defaulters because they do have the ability to \u2018pay\u2019 but aren\u2019t doing so because it suits them not to appear unpopular with voters. That approach has to change but it won\u2019t unless they are asked to pay their bills which is why there cannot be a bailout of any kind. On the contrary the government must, appropriate funds from their share of revenue transfers, and pass it on to the banks. The total exposure of state-owned banks to SEBs currently is 3.4% of their total loans or roughly Rs 1.6 lakh crore of which around Rs 72,000 crore or 46% has been restructured. For a small bank like Dena Bank it is 9% of its loan portfolio, while for Central Bank it is 9.4%, dangerously high. In fact, banks\u2019 overall exposure to the power sector is dangerously high at close to 10%. The fact is the government has not been able to convince even the Bharatiya Janata Party-ruled (BJP) states such as Rajasthan to raise tariffs adequately; the Rajasthan SEB alone contributes a staggering Rs 80,000 crore and owes lenders some Rs 60,000 crore. A couple of state governments have asked for more lenient repayment terms than those specified in the FRP saying a moratorium of two years was too short; some have asked for interest concessions. None of this can be agreed to because it\u2019s clear from the way the FRP has progressed that states do not keep their word. Also, extending the FRBM is a bad idea; if the Centre is to be subject to fiscal discipline, so must the states. Since states are now getting a much bigger share of revenues they need to foot their bills.