Banks will give fresh loans to state electricity boards only if the latter restructure their operations by raising tariffs and making recoveries from defaulting customers, say top bankers.
Fresh loan proposals from SEBs will be entertained by banks only if they come up with viable restructuring proposals, said Mr N. Seshadri, Executive Director, Bank of India.
The public sector bank has an exposure of Rs 6,500 crore to the SEBs. The electricity boards of Tamil Nadu, Rajasthan and Andhra Pradesh are understood to have moved to restructure their operations.
“We do not want to throw good money after bad. The writing on the wall for the SEBs is clear. Unless their financial health does not improve it will difficult for us to commit further funds,” said a senior official with another public sector bank.
‘Meaningful progress'
According to report brought out by credit rating agency CRISIL in October 2011, lenders', including banks, Power Finance Corporation, and Rural Electrification Corporation, exposure aggregating around Rs 56,000 crore is potentially at risk, if there is no meaningful progress on reforms in the next 18 months.
The risk to these lenders arises primarily from potential weakening in their asset quality due to two critical issues: escalating losses and debt levels in the power distribution sector, and the shortage of fuel for power generation.
CRISIL estimates that the losses in the distribution segment have mounted to Rs 35000-40000 crore in 2010-11, nearly doubling from 2008-09 levels. The losses may be higher if any of their large receivables need write-offs. Due to funding of these losses by debt, the cumulative debt of State power utilities, including distribution entities, has risen to an estimated Rs 3 lakh crore at the end of March 2011.