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Home News Power Sector News Banks fear States will unplug from debt re-cast plans

Banks fear States will unplug from debt re-cast plans

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PFCBanks restructuring the debt of State electricity distribution utilities fear the States will back out of the plan for achieving financial turnaround of the Discoms. This is because the States' precarious financial position may discourage them from wholeheartedly participating in the debt-recast proposal floated by the Centre.

To bring comfort to the banks such as Bank of Baroda, Punjab National Bank, Oriental Bank of Commerce and Central Bank of India, the Finance and Power Ministries would like the recast plan to be made mandatory. The Ministries propose to take it to the Cabinet.

Further, the Ministries are pushing for granting of statutory liquidity ratio (SLR) status to bonds that have to be issued by the States while working on the recast plan of ailing Discoms.

"The Centre has to approve the package and grant SLR status. This will offer banks some comfort. Otherwise, all States are moving in different directions," sources in the banking industry said. Having an SLR status on bonds will boost liquidity and encourage banks to buy them.

The banks, already hit by non-performing assets, fear that some States may back out because they are not in a position to take burden under Fiscal Responsibility and Budget Management Act. Unless it is made mandatory, the proposed package will not work, they said.

However, many banks have gone ahead with restructuring of their existing loan exposure to ailing Discoms.

The focus is on seven States with maximum losses — Rajasthan, Punjab, Haryana, Uttar Pradesh, Madhya Pradesh, Tamil Nadu and Andhra Pradesh. The package for Rajasthan and Uttar Pradesh has already been implemented, Punjab's case is likely to be take up this quarter, sources said.

According to the proposal, 50 per cent of the outstanding Rs 1.20-lakh crore short-term liabilities are to be taken over by States by way of bonds. Also, the States would provide support to the Discoms for repayment of interest and principal.

On the other hand, the Power Finance Corporation has said that it will not participate in the re-structuring package. Instead, it will consider offering 'transition loans' worth nearly Rs 17, 330 crore to six States.

"PFC is yet to sanction the loans. At the moment it is being considered. The Discoms may not need it, if the Government bailout package is enough or they would require less than what is proposed," said a PFC Board member.

At present, 23 States have filed tariff revision petition with the Central Electricity Regulatory Commission. This is because, timely revision of electricity tariffs is vital for improving health of the Discoms.

Source- Hindu Businessline


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