Banks may get relief for troubled power loans

The government is set to clear a estimated Rs 10,000 crore relief package for banks, which are facing the prospect of loans to 25 mega power projects, turning sour, because promoters are unable to find buyers for their capacity in this supply glut market.

Also, the time limit for sealing PPAs (power purchase agreements) is expected to extend by another 60 months for the entire capacity of a project. Further, there is also a proposal that lenders will release bank guarantees given by the promoters in proportion to the capacity for which PPA is signed. However, to protect the interests of banks, the released funds will go to the banks for retiring debt. This move will also help banks to improve asset quality, as the loans will not be categorised as NPAs.

Moreover, on Wednesday, Ministry of Power informed that India has become a net exporter of electricity for the first time during current financial year. India has exported ~5,798 million units to Nepal, Bangladesh and Myanmar which is higher by 213 million units compared to the import of ~5,585 million units from Bhutan.

In addition, power sector is witnessing revival, as India is becoming net exporter, since the cross-border trade of electricity started in mid-eighties. However, companies get this custom duty benefit post furnishing bank guarantee which is given only after PPAs for the entire capacity of project are signed.

These 25 mega projects were approved in 2012 with an objective of fast ramping up of generation capacity, since the country was facing severe shortage of power. The projects were given 60 months to tie up PPAs.