Power Ministry Changes Make Bankers Nervous

Chiefs of top Indian lenders, under the aegis of the Indian Banks Association (IBA), intend to write to the power ministry seeking clarity on a plan to resolve stressed assets in the sector, two officials with direct knowledge told BloombergQuint on condition of anonymity. With the recent change in leadership at the ministry, bankers are worried that a restructuring plan, which was under discussion, could be derailed.

The IBA will write to the ministry on these matters, the bankers quoted above said.

Piyush Goyal, who was the power minister since May 2014, was given the railways portfolio on Sunday. RK Singh, a former officer of the Indian Administrative Service, took charge of the power and new and renewable energy ministries on Tuesday.

According to the first banker quoted above, lenders have been meeting Goyal for many months to discuss a package for stressed power assets.

The first such meeting took place in June, where a package was discussed, which would allow banks to pool stressed power plants together by converting their debt to equity. A public sector firm, like NTPC Ltd., would then take over these assets to help turn them around. While bankers had broadly agreed to adhere to this plan, they are still waiting for a final blueprint on how it would be implemented.

Following this, some top bankers informally met Goyal last month, to discuss the fact that about Rs 1.5 lakh crore worth of loans to power plants could be at risk, if states choose to renegotiate power purchase agreements.

Another meeting was scheduled for this week to discuss these plans in detail. However, with Goyal's exit from the ministry, it is not clear whether the meeting will actually happen, said the second banker quoted above.

Total stressed assets on bank books have risen to about Rs 10 lakh crore. Apart from iron and steel, transport and telecom companies, power is the largest contributor to stress for banks, the Reserve Bank of India had noted in its financial stability report released in June. While there has been some improvement in the financial health of the steel sector following government support, banks are still struggling to find a solution to stressed telecom and power accounts.

Bankers flagged off the risk emerging from loans to power producers after their first quarter earnings. Private sector lender Axis Bank Ltd., in an analyst conference call on July 25, said that most of its ‘watch list' for stressed assets is now centered around the power sector. ICICI Bank Ltd., too, has identified power as among the list of sectors from where stress could continue to emerge.

Total loans to the power sector, including those to distribution and transmission firms, stand at Rs 5.24 lakh crore, shows the RBI's sectoral lending data.