The government may soon seek Cabinet approval for restructuring Rs 1.5 lakh crore loans of power distribution companies. While states will take some of the liability, public sector banks may also relax some conditions so that funding to the state power utilities is not choked after the loan recast.
“It will go to the Cabinet within this month. Some responsibility is being taken over by the state governments. Some future funding is on certain conditions,” Financial Services Secretary D K Mittal said.
He said even after restructuring of the loans of power distribution companies, banks would continue to lend them money, but only for a limited period of one or two years. The matter has been discussed with the Prime Minister's Office.
The proposal was mooted by Planning Commission member B K Chaturvedi in a report. It was suggested that the burden should be shared by states and the lending banks, which should provide a moratorium on interest payment.
According to the proposal, state governments will have to absorb 50 per cent of the loans and convert that into bonds. The other 50 per cent is to be restructured by banks by extending the tenure for repayment and a possible moratorium on interest. However, the finance ministry has not agreed to banks taking the burden.
The finance ministry is insisting that states should increase power tariffs. Several state discoms have been running into losses with some of them not being able to pay their loans. For instance, the Tamil Nadu Electricity Board, responsible for distributing power to much of the state, has accumulated losses of Rs 50,000 crore. Due to the increase in costs, the rate needs to be increased at a Compound Annual Growth Rate of six per cent over the next five years, according to a report by CRISIL.
Asked about setting up a holding company for recapitalisation of public sector banks, Mittal said the proposal would go to the Cabinet in about two weeks.
“Some inter-governmental consultations are required,” he said. Mittal also expressed the hope that amendments to the Banking Regulation Act would be passed in the Monsoon session of Parliament.
