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Home News Power Sector News RSEB debt restructuring cleared, banks hopeful of replicating model

RSEB debt restructuring cleared, banks hopeful of replicating model

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RajasthanIn a move that could provide relief to the tune of Rs 1.7 lakh crore to the banking system, debt restructuring of the Rajasthan State Electricity Board (RSEB) is all but completed and bankers are hopeful of replicating the same across other ailing state-owned power utilities. According to sources with direct knowledge of the development, the restructuring will include converting the term loans extended to the state-run power utility into working capital loans priced in the range of 11.5-12.5%. The procedure will also involve extending the tenure of the loans by 10-15 years.

"The restructuring exercise has got an in-principle approval from the finance ministry and will be completed soon," said a senior official of a state-run bank.

RSEB has a total cash deficit in excess of Rs 8,500 crore and is one of the worst-performing state-run power utilities after the Tamil Nadu SEB. A consortium of banks including Punjab National Bank, Central Bank of India, State Bank of India and Bank of Maharastra have lent to RSEB.

Sources say the restructuring will not involve any sacrifice on the part of the lenders at this stage. "We have full cooperation of the state government in the case of Rajasthan and hope the restructuring can be carried out smoothly," added the banker.

Bankers hope that the same procedure can be replicated across other ailing power utilities as well, if all goes will in the case of RSEB. PSU banks and NBFCs involved in power financing have a total exposure of over Rs 1.7 lakh crore to state-run power utilities.

Most of these units have not been able to service their loan obligations because they have not increased their tariffs in accordance with their costs, and of course the rising cost of coal has made matters worse. As a result, the power sector is the single largest pressure point for the banking sector as far as asset quality is concerned.

However, industry-watchers point out that the case of RSEB is different because the Rajasthan State Government has agreed to guarantee loans to it. Also, the power utilities in Rajasthan are mainly in debt because they haven't received subsidy payments from the state government.

In the case of other states, power utilities are debt-laden because of low-pricing, high customer receivables as well as mounting transmission losses. Some experts believe it is unlikely that other state governments would agree to such a restructuring plan without some kind of sacrifice on the part of the lenders as well.

Ratings agency Crisil Research estimates that loans to SEBs amounting to Rs 56,000 crore run the risk of turning into NPAs in the next three years if urgent action isn't taken in terms of raising tariffs across the board.

State-run banks have a significant exposure to SEBs. Industry estimates suggest that Canara Bank has one of the highest exposures at close to Rs 10,000 crore. This forms about 4.6% of its total loan book, while lenders like Bank of Baroda, Bank of Inda and Punjab National Bank have exposures in the range of 2.7-2.8% of their loan books.

State Bank of India has the lowest relative exposure to SEBs at about 1% of its loan book, though it amounts to over Rs 8,500 crore.

Source- Economic Times


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