Banks look at $38 bn brand-new bad loans from power sector: Bank of America-Merrill Lynch report

Mumbai: The banking sector, which is already reeling under a massive pile of bad loans, is looking at prospective loser properties of $38 billion from the power sector, as $53 billion of the $178 billion bank loans to the sector are currently worried, stated a report.

"Of the $178 billion (around Rs 11.7 trillion) of debt of the power sector, $53 billion (around Rs 3.5 trillion) are currently under tension (mostly to the
generation sector) and of this, as much as $38 billion (around Rs 2.5 trillion) have the capacity of being written-off as bad loans," the Bank of America-Merrill Lynch report stated on Wednesday.The report is based on that as much as 71 gigawatt(gw )of private sector coal-based jobs are dealing with insolvency filings at numerous NCLTs, suggesting likely resolution from June 2019 and it anticipates a typical 75 percent write-off in these loans.Of the$178 billion loan, the circulation business have$65 billion, generation companies have$ 77 billion, and transmission firms have a financial obligation concern of $36 billion, states the report penned by BofA-ML research study analysts Amish Shah and Sriharsh Singh.Of the $53 billion of stressed out loans, as much as $50 billion are to the generation sector alone, says the report, adding loans to the distribution sector, which were earlier stressed, are now much better off offered quasi-state warranties and restructuring under the government's Ujwal Discom Assurance Yojana (Uday)plan. Banks looking at$38 bn brand-new bad loans from power sector: Bank of America-Merrill Lynch report. PTI image.Of this$178 billion debt mountain, banks have the biggest at 53 percent of the total loans, followed by non-banking financing business( NBFCs)at 35 percent and the balance from the states.About 43 percent of loans are encompassed the power generation sector, followed by circulation at 37 percent and transmission at 20 percent, the report said.It can be noted that the power, steel, roadways, mining and telecom sectors are the most stressed represent banks whose bad loan problem has actually crossed Rs 11 trillion or 10.5 percent of the system since December 2017. The report additional notes that the $116-billion national power utilities lose around $9 billion each year however can turnaround without treking consumer tariffs as well as continue to use the present typical aid of 2 percent if the numerous of its cost-inefficiencies are resolved.It also specifies that tariff hikes are not the way forward for the sector to turn-around as already tariffs for commercial and commercial customers, who constitute 37 percent of demand, are very high compared with its regional peers.But the report is critical of the reforms presented to attend to ineffectiveness stating they expect minimal progress.As per the report, of the$116 billion expenditure incurred by power distributors yearly (since March 2016-the current readily available data for nationwide distributors), 54 percent is associated with operations and maintenance/other expenses across the value chain (administration costs, worker expenditures, taxes, marginal revenues etc), fuel comprises only 20 percent of the cost, borrowing cost is only 19 percent and freight charges are at a low 7 percent.And remarkably aids to farmers make up only 2 percent of the expense of the states on a national level barring for Punjab and Haryana where its 7-8 percent.Farmers are the 2nd greatest consumer segment for the discoms with 22 percent of overall power intake as agricultural power tariff is just Rs 1.7 per kilowatt hour(kWh)against the cost of Rs 6.3 per kwh.Though some states offer totally free power to farmers, the expenditures are paid by the particular states to distributors from their yearly spending plans. "Our analysis recommends, while at the nationwide level, power subsidy comprises 2 percent of all states'yearly expense, but for Punjab and Haryana, it 7-8 percent,"says the report.The sector has a $5 billion import bill as one-sixth of the fuel needs are satisfied by imports. For power generation business, this makes up$24 billion in yearly expenses, while coal accounts for 87 percent of this cost.Besides,$4 billion of such fuel is imported which is around 5 percent the nation's non-oil and non-gold imports ), consisting of$ 3 billion of coal and$1 billion of LNG.Published Date: Apr 04, 2018 20:00 PM |

Upgraded Date: Apr 04, 2018 20:00 PM