Rating agency ICRA has raised concerns over the likely escalation of credit risk for Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), considering their exposure to many loss-making power distribution companies.
Despite the concerns, the agency has maintained stable outlook for their various long-term bond and bank borrowing programmes.
ICRA has said it has "serious concerns" over the likely increase in the counter-party credit risk for a large number of PFC's borrowers, given their exposure to several loss-making state power distribution entities.
PFC's direct exposure to discoms with weak credit profiles remain low.
But the agency in a statement noted that several state power generation companies -- which are large borrowers of PFC and account for a chunk of its loan book -- could find their cash flows impacted by the deteriorating fiscal health of the discoms.
Similarly, ICRA noted that there are serious concerns over the likely increase in credit risk for a large number of REC's borrowers, due to the significant losses incurred by state power distribution companies.
"While a part of REC's exposures to state distribution entities with weaker credit profiles is covered by guarantees, which mitigates the risk to an extent, the timeliness of funds flow from the state governments concerned in case of need remains a critical factor...," it said in another statement.
Both entities' collection efficiency from state-run utilities is in the range of 98-99 per cent.
At end of June 2011, PFC's total credit portfolio stood at Rs 1,04,082 crore while that of REC was at Rs 85,825 crore.
The mismatch between power tariffs and the cost of generating electricity is hurting the financial health of power distribution companies.
Going by estimates, electricity distribution losses touched about Rs 70,000 crore in 2010-11.
"...Timely implementation of the corrective steps proposed, including significant tariff revision, is required to address the growing concerns over the financial health of the state power utilities," ICRA said.
