A deal to restructure loans to financially-troubled power distribution companies (discoms) brought some relief, albeit temporary, to banks in India. But, with delays in execution and high interest burden, lenders may bear more burden of debt recast for power projects.
Vibha Batra, co-head financial sector rating at ICRA, said 40-50% of banking sector exposure to the power sector may need to be restructured. The total exposure to power sector, including discoms, was about of Rs 3,60,000- 3,80,000 crore. The estimates of power recast of over Rs 1,40,000 crore includes loans to discoms.
The loans to discoms will have loans lions share in debt recast, power generation projects facing delays and high interest burden will have substantial share in it.
ICRA said a sizeable chunk of the banking credit to the infrastructure sector (including power) is vulnerable due to factors like delays in and sometimes even cancellations regulatory clearances and licences.
The structurally weak contracts, fuel unavailability concerns, weak counterparties or stretched payments from state governments and government-owned entities also contributed to problems leading to restructuring of loans. Some of the highly leveraged business groups are under stress and could approach banks for loan restructuring.
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In the current uncertain economic and business environment, the risks of restructuring loans becoming bad loans were high. ICRA said gross non-performing assets (NPAs) for industry segment were only 2%. However, share of industry in restructured advances are 8%. Some of these restructured accounts could slip into the NPA category.
| Credit profile of borrowers (power units) may weaken in FY13 * Project implementation related delays * Reduced profitability of new projects * Higher interest rates * Structurally weak contracts and concerns over fuel linkages * Lacklustre capital markets may constrain access to equity * Moderation/slowdown in demand conditions |
The NPA percentage in the infrastructure sector (accounts for around 14% of domestic credit as of June 2012) is only 0.6% as of March 31, 2012.
The tally of standard restructured advances (of system) could move up to Rs 3,70,000–4,20,000 crore (6.5-7.5% of advances) by March 31, 2013 from Rs 2,30,000 crore as on March 31, 2012.
