Central Bank may recast loans to power utilities

Public sector lender Central Bank of India may go in for restructuring of some of its loans given to power companies in the current quarter.

"We have a total exposure of around Rs 12,000 crore to the power distribution companies (discoms) and some of them are likely to be restructured in the current quarter (January-March)," a top bank official told PTI. Of late, banks have been concerned about their advances to the SEBs (state electricity boards) of Tamil Nadu, Bihar, Rajasthan, UP, Haryana, MP and Punjab, which according to the rating agency Crisil, are the most vulnerable ones.

A recent Crisil report had said that losses of discoms rose 24 per cent to Rs 27,500 crore between 2006-07 and 2009-10 and may rise to Rs 35,000-40,000 crore in 2010-11, mainly because of the problems the utilities are facing like no rise in tariffs for longer period by states and non-recovery of dues.

On the back of rising concerns relating to distribution companies, many banks have already started restructuring the loan accounts of these firms. Punjab National Bank, which had recast Rs 2,500 crore of loans in the second quarter, has said out of this amount as much as Rs 1,800 crore was from the Tamil Nadu SEB. Similarly, UCO Bank, Bank of Maharashtra along with 11 others had restructured around Rs 7,000 crore of loan extended to Uttar Haryana Bijli Vitran Nigam last month. Bank of Maharashtra has recast about Rs 1,100 crore of debt of the Rajasthan SEB. Industry experts say rising cases of debt recast in the power sector will increase the provisioning requirement of the banks. In case of any standard asset restructuring, the provisioning requirement for commercial banks will increase to 2 per cent from 0.4 per cent, which in turn will adversely impact their profitability.

Source: Business Standard