State electricity boards’ debt revamp positive for banks

The power sector is likely to be the latest beneficiary of the government’s reforms push. The market is expecting the government to accept the Chaturvedi panel’s recommendations on accumulated debt of state electricity boards (SEBs). The panel has suggested that 50 per cent of the loans of SEBs be taken up by the respective state governments and the remaining 50 per cent be restructured by banks and financial institutions. The panel has suggested that loans given by the state government to power distribution companies be converted into equity or the repayment deferred.

If the recommendations are accepted, banks and financial institutions, which have exposure to SEBs will be positively impacted, claim analysts. The Rs 1,50,000-crore short-term debt exposure that banks have to SEBs, has been a cause of concern for analysts, as few are in a position to repay it. Also, in future, loans to distribution companies will be made only on the basis of their credit ratings. Banks would no longer be able to lend to discoms to cover their short-term losses.

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