The alleged irregularities in allocation of coal blocks might take a toll on public sector banks, already stressed by poor credit offtake. While banks do not have direct exposure to the coal sector, huge loans to the power sector, a principal input for which is coal, has put banks at risk.
According to a recent report by Standard & Poor's (S&P), Indian banks have a total exposure of $59.7 billion (7.2 per cent of their loans) to the power sector. Banks have already started evaluating their exposure to the power sector through stress tests. Corporation Bank, for instance, is planning a stress test in the power sector soon. "If projects don't take off, it would put pressure on banks, though NPAs (non-performing assets) might not go up much. We do not have much exposure to the power sector, but we will carry out a stress test," said Ajai Kumar, chairman and managing director.
State Bank of India, the country's largest public sector bank, expects the issue of coal block allocation to be resolved in three to six months. The bank has an exposure of Rs 50,000 crore to the power sector, said Diwakar Gupta, managing director and chief financial officer.
"The coal issue has an indirect linkage to banks, as these have exposure to the power sector. There are reasons to believe the government is aware of the criticality of the 'Coalgate' issue, and would resolve it in good time," Gupta said on Friday.
Currently, 50,000 Mw of power generation capacity, with an investment of about Rs 2.5 lakh crore, is under different stages of implementation. Excluding the Rs 50,000-70,000 crore of promoters' contribution, the total funding to the sector was close to Rs 1.75 lakh crore, said Gupta. "The amount is large, but it doesn't mean everything will be under stress," he added.
United Bank of India, which has direct exposure of about Rs 800 crore to the power sector, has also started evaluating the financial status of power companies, as well as their future coal linkages. "Internally, we have started investigating the issue by talking to stakeholders at different levels. Most of the loans to the power sector are through consortium-lending. So, there are meetings at the level of bankers as well," said Bhaskar Sen, chairman and managing director, United Bank of India.
In its report, S&P had stated the proposal to restructure debts of state-owned power distribution companies was a short-term solution.
The threat of more coal blocks being deallocated also looms large. Already, four blocks have been deallocated. "Whether banks would have more NPAs if coal block allocations are cancelled is a hypothetical question. We need to see how power companies can secure coal, if that coal (from deallocated blocks) is unavailable," said K R Kamath, chairman and managing director, Punjab National Bank.
Earlier, a Comptroller and Auditor General report had questioned the allocation of coal blocks by the government. It had estimated a loss of Rs 1.86 lakh crore to the exchequer through irregularities in the process. The report had named several companies, including Essar Power, Hindalco, Tata Steel, Tata Power and Jindal Steel and Power, which had secured blocks in various states.