Power generation sector loans worth nearly Rs 75,000 crore at risk: Crisil

29 Jul 2015 Evaluate

Amid concern of growing bad loans of the banks, the global rating agency Crisil Ratings has red flagged the power sector loans, stating that the unviable power generation and distribution sector could jeopardise loans worth nearly Rs 75,000 crore if issues plaguing these sectors are not resolved soon.

The rating agency noted that 46,000 megawatts of power projects are facing viability issues due to a lack of long-term buyers for electricity, inadequate fuel supply, and aggressive bidding to win projects and coal blocks. According to the Crisil research note, of the 36,000 MW coal-based projects, tariff under recovery has impacted 20,000 MW of capacity, while the rest are reeling because of inadequate feedstock and poor electricity offtake by discoms. Another 10,000 MW gas-based projects have become unviable because of dwindling fuel supplies from Reliance Industries-operated block in the Krishna-Godavari basin.

Crisil has stated that total loans to these stressed generation projects are currently about Rs 2.1 lakh crore. A sixth of it, or about Rs 35,000 crore, is for projects which have the cushion of a strong parent. Additionally, projects with loans of Rs 1 lakh crore could become viable if their payment profiles can be structured appropriately. This leaves the remaining Rs 75,000 crore of loans at risk.

The total outstanding credit to the power sector from various banks amounted to Rs 5.83 lakh crore at the end of 2014. State Bank of India had the highest exposure to the power sector with a total loan amount of Rs 1,00,085 crore, followed by Canara Bank with Rs 45,620 crore. Among the private banks, ICICI had an exposure of Rs 13,646 crore, HDFC Bank Rs 8,962 crore. Banks have raised concern that at least Rs 1.5 lakh crore of their loans to around two dozen power projects may turn non-performing on account of a new rule that mandates them to provide for bad debts if the project cost exceeds 10% of the original estimate due to delays. Though, a working group of bankers, examining the issues faced by the power sector, has recommended that stressed loan accounts of the industry should not be downgraded till September 31, 2015.

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