News of a deal to restructure loans at financially troubled power distribution companies (discoms) brought some relief, albeit temporary, to banks in India. However, with delays in implementation and the high interest burden, the lenders might bear a greater burden on the recast.
Vibha Batra, co-head, financial sector rating, at Icra, said 40-50 per cent of the banking sector exposure to the power sector might need to be restructured. The total exposure to power, including discoms, was Rs 360,000-380,000 crore.
Icra said a sizable chunk of the banking credit to the infrastructure sector (including power) was vulnerable due to factors such as delays in and sometimes even cancellations of regulatory clearances and licences.
Structurally weak contracts, fuel unavailability concerns, weak counter-parties or stretched payments from state governments and government-owned entities also contributed to the problems leading to restructuring of loans. Some highly leveraged business groups are under stress and could approach banks for debt restructure.
In the uncertain economic and business environment, the risks of restructuring loans becoming bad loans were high. Icra said gross non-performing assets (NPAs) for the industry segment were only two per cent.
However, the share in restructured advances were eight per cent. Some of these restructured accounts could slip into the NPA category.
The NPA percentage in the infrastructure sector (14 per cent of domestic credit as of June) was only 0.6 per cent as on end-March 2012.
The tally of standard restructured advances could move up to Rs 370,00–420,000 crore (6.5-7.5 per cent of advances) by March 31, 2013, from Rs 230,000 crore as on March 31, 2012.