Allahabad Bank freezes lending loans to power sector on increasing financial stress

MUMBAI: Financial stress to banks caused by the power industry increased with Bank of India set to restructure a quarter of its power loans and Allahabad Bank freezing lending to the sector whipsawed by losses at state distributors and hurdles to new plants.

Loans to Tamil Nadu Electricity Board and Rajasthan Electricity Board will be restructured - the tenor of the loans and interest payable will be changed - to avoid an imminent default and firewall banks from rising bad loans, senior bank officials said.

"We have received requests from one or two state electricity boards and we are looking into it," said Bank of India Executive Director BA Prabhakar. BoI has lent Rs 8,000 crore to various state boards. "We have yet not restructured. No one has defaulted yet."

The country's financial system is under stress because of mounting losses at state distribution companies and thwarted project clearances. Some projects, such as East Coast Energy - in which Goldman Sachs and General Atlantic are stakeholders, are stuck half way because of local protests.

Subsidised tariffs have pushed power distribution companies to the brink of collapse with losses soaring last fiscal by 45% to an estimated Rs 40,000 crore.

Allahabad Bank, which has lent more than Rs 13,600 crore to utilities and distributors, has stopped lending to the sector.

"In the past six months, we have not sanctioned a single fresh loan. Till things are clearer ... we don't want to go into this area," Allahabad Bank CMD JP Dua said.

Dena Bank and Indian Overseas Bank are also considering to restructure loans to the power sector. Punjab National Bank restructured Rs 2,500 crore of loans to power companies last quarter.

Source: EconomicTimes