Power sector will continue to trouble private banks

Power sector stress contributes nearly 17 per cent of the overall debt of banks; next round of fresh slippages may also emanate from the sector. The quantum of power sector exposure of private sector banks will continue to restrict improvement in asset quality, as emphasised by bank executives in cautious comments after the June quarter results.

Power sector stress contributes nearly 17 per cent of the overall debt of banks, and the fear is that the bulk of the next round of fresh slippages will also emanate from the sector. “Recognition of stress in the power sector remains low across banks.However, private banks appear to have recognised a higher share,” says Ashish Gupta, research analyst, Credit Suisse. “We estimate that to reach an interest cover of 1, on an average, the power companies will need a 47 per cent reduction in interest burden based on current profitability.”

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