Punjab National Bank has kicked off the biggest loans restructuring exercise by Indian lenders to a sector - power - by converting Rs 2,500 crore of short-term loans into long-term ones to avoid imminent defaults.
The second-biggest staterun lender, which has given about Rs 15,000 crore, or 5%, of its total loans to the power sector, had some borrowers facing short-term repayment issues, the bank's top executive said. The bank would lend to projects to which it has already sanctioned loans, but will be wary of new ones, he said. "Where we had issues on short-term loans, we have converted them to longterm," said KR Kamath, chairman & MD of Punjab National Bank. "We have acted proactively," he said without naming the borrowers who were about to default.
Public sector lenders, including Indian Overseas Bank and Dena Bank, expect some requests for loan restructuring from the strapped state electricity boards.
Revenue-Cost Gap Widens:
The state electricity boards have almost complete monopoly in distribution, but sell power at a loss. Private banks such as ICICI and Axis are saying they don't see delinquencies and that their portfolios are performing well. Crisil, a unit of Standard & Poor's, estimates that power sector losses could be as high as Rs 56,000 crore, unless reformed.
Riddled with defaults and losses, state electricity boards have been cutting purchases from power producers such as NTPC, JSW Energy and Tata Power, all of which are clamouring for a tariff increase in the face of mounting costs. As coal prices shot up and gas availability plunged, profitsqueezed power utilities knocked at the doors of state boards, which turned a deaf ear to their demands for a tariff increase citing past agreements to supply power at a pre-determined price. "Increasing gap between average revenue realised per unit and average cost of supply per unit due to inadequate and delayed tariff revision" is one of the reasons for the poor conditions of state electricity boards, says a Crisil report. "High and increasing levels of outstanding debt on discoms' balance sheets, resulting in higher interest costs" is another, it said.
The state electricity boards have almost complete monopoly in distribution, but sell power at a loss. Private banks such as ICICI and Axis are saying they don't see delinquencies and that their portfolios are performing well. Crisil, a unit of Standard & Poor's, estimates that power sector losses could be as high as Rs 56,000 crore, unless reformed.
Riddled with defaults and losses, state electricity boards have been cutting purchases from power producers such as NTPC, JSW Energy and Tata Power, all of which are clamouring for a tariff increase in the face of mounting costs. As coal prices shot up and gas availability plunged, profitsqueezed power utilities knocked at the doors of state boards, which turned a deaf ear to their demands for a tariff increase citing past agreements to supply power at a pre-determined price. "Increasing gap between average revenue realised per unit and average cost of supply per unit due to inadequate and delayed tariff revision" is one of the reasons for the poor conditions of state electricity boards, says a Crisil report. "High and increasing levels of outstanding debt on discoms' balance sheets, resulting in higher interest costs" is another, it said.
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