Banks stare at $38 bn new dud loans from power sector

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Mumbai, Mar 4
The banking sector, which is already reeling under a mammoth pile of bad loans, is looking at potential dud assets of USD 38 billion from the power sector, as USD 53 billion of the USD 178 billion bank loans to the sector are already stressed, said a report.
“Of the USD 178 billion (around Rs 11.7 trillion) of debt of the power sector, USD 53 billion (around Rs 3.5 trillion) are already under stress (primarily to the generation sector) and of this, as much as USD 38 billion (around Rs 2.5 trillion) have the potential of being written- off as bad loans,” the Bank of America-Merrill Lynch report said today.
The report is based on the fact that as much as 71 gigawatt (gw) of private sector coal-based projects are facing bankruptcy filings at various NCLTs, implying probable resolution from June 2019 and it expects an average 75 per cent write-off in these loans.
Of the USD 178 billion loan, the distribution companies have USD 65 billion, generation companies have USD 77 billion, and transmission firms have a debt burden of USD 36 billion, says the report penned by BofA-ML research analysts Amish Shah and Sriharsh Singh.
Of the USD 53 billion of stressed loans, as much as USD 50 billion are to the generation sector alone, says the report, adding loans to the distribution sector, which were earlier stressed, are now better off given quasi-state guarantees and restructuring under the government’s Ujwal Discom Assurance Yojana (Uday) scheme.
Of this USD 178 billion debt mountain, banks have the largest at 53 per cent of the total loans, followed by non-banking finance companies (NBFCs) at 35 per cent and the balance from the states.
About 43 per cent of loans are extended to the power generation sector, followed by distribution at 37 per cent and transmission at 20 per cent, the report said.
It can be noted that the power, steel, roads, mining and telecom sectors are the most stressed accounts for banks whose bad loan burden has crossed Rs 11 trillion or 10.5 per cent of the system as of December 2017.
The report further notes that the USD 116-billion national power utilities lose around USD 9 billion annually but can turnaround without hiking consumer tariffs and also continue to offer the present average subsidy of 2 per cent if the many of its cost-inefficiencies are resolved.
It also states that tariff hikes are not the way forward for the sector to turnaround as already tariffs for industrial and commercial consumers, who constitute 37 per cent of demand, are very high compared to its regional peers.

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