Public sector banks are staring at the prospect of making provisions for Rs 2.2 trillion in the September quarter on loans given to power companies if a solution to sick projects in the country is not found.
Banks are trying their best not to send power sector defaulters to the National Company Law Tribunal (NCLT) for debt resolution under the Insolvency and Bankruptcy Code because it would mean making immediate provisions for 50 per cent of the loan.
“This (September 2018 quarter) will be the most crucial quarter for the banking sector as another big chunk of bad loans are coming up for provisioning,” said an official of the Indian Banks’ Association (IBA). Provisions for power sector loans could be as high as Rs 400 billion in the September quarter, the official said.
The Indian banking sector is already plagued with NPAs of around Rs 10.2 trillion. Of this, 90 per cent of the bad loans are held by government-owned lenders. Last year, the Reserve Bank of India had come up with two lists — one of 12 companies and another of 28 companies — to be sent to the NCLT for bankruptcy proceedings.
Barring a few cases, most are either undergoing insolvency proceedings or are mired in litigation.
According to the World Bank, Indian lenders recover only 26.4 per cent of loans after an average 4.3 years as compared to US banks, which recover 82.1 per cent of their loans within a year.
“Due to litigation in IBC (Insolvency and Bankruptcy Code) cases and high haircuts taken, banks are realising that it’s better to negotiate with present promoters to find a way out,” said a banker.
“Some of the power companies are even looking at the prospects of liquidation as they do not have the power purchase agreements signed with customers,” said an official.
While gas-based projects are almost on the verge of closure due to unavailability of gas, power plants which run on imported coal are unable to produce electricity at viable rates because the landed price of imported coal has touched a six-year high of $110/120 a tonne.
At the same time, the cost of wind and solar infrastructure in India is falling consistently, resulting in tariffs of Rs 2.43 to Rs 3 per kWh, which are extremely competitive. These rates are 10-20 per cent lower than the average of domestic coal-fired power generation (NTPC’s 2017-18 average wholesale thermal tariff was over Rs3.20/kWh).
The Gujarat government, meanwhile, has set up a committee led by former Supreme Court retired judge RK Agarwal to find a solution to three major power projects — Tata Power, Adani Power and Essar Power, which are making huge losses owing to a steep rise in imported coal prices.
A committee set up by the power ministry had listed 34 coal-fired power plants as stressed assets with a combined capacity of 40,130 Mw. The total commissioned capacity is 24,405 Mw with the remaining 15,725 Mw under construction.
Of the 34 power projects, only 17 have been completed. The remaining are either partially completed or under execution. Ten of these projects are located in Chhattisgarh, followed by six in Odisha, five in Maharashtra and four in Madhya Pradesh. Uttar Pradesh and Andhra Pradesh have two such projects each while Bihar, Jharkhand, West Bengal, Tamil Nadu and West Bengal have one each.
On February 12 this year, the Reserve Bank of India had asked banks to classify even one day’s delay in debt servicing as default. The notification mandates resolution proceedings against stressed accounts to be completed in 180 days. The Allahabad High Court has stayed the RBI circular for power companies and had directed the finance ministry to find other solutions.
Source: July 24, 2018, Business Standards