Power sector contributed to more than half of the loans restructured by large public sector banks in the quarter ended June 30.
Most of these loans were given to the state electricity boards (SEBs) but were restructured after the boards failed to repay.
If banks recast a debt, the provisioning requirement for the asset goes up. As a result, the bottom line is impacted.
Mumbai-based Union Bank of India restructured loans worth Rs 1,642 crore in Q1— of that there was a restructuring of one single account of Rs 1,200 crore from an SEB. Higher provision toward restructured assets have resulted in slower profit growth for the lender — growing by 10 per cent to Rs 512 crore. “Power sector would continue to suffer unless big-ticket reforms happen, thereby affecting the asset quality of banks,” said executive director of one of the public sector banks.
Banks with a large share of restructured power sector loans (Rs cr)
in first quarter
|Central Bank of India
|Union Bank of India
|Indian Overseas Bank
|SEB: State electricity boards Source: Banks
Indian Overseas Bank restructured around Rs 475 crore of loans extended to SEBs. This accounts for almost half its total restructuring in the first quarter.
Corporation Bank and Central Bank of India were also victims. Corporation Bank restructured loans worth Rs 1,075 crore of which Rs 1,000 crore was for SEBs. Central Bank of India restructured assets worth Rs 2,674 crore of which Rs 2,400 crore was from SEBs.
Corporation Bank reported a flat net profit at Rs 370 crore, which rose just five per cent over the corresponding quarter last year. Central Bank of India reported 20 per cent rise in net profit at Rs 336 crore at the end of the June quarter.
“The pressure is coming from state-owned power utilities and not from the private sector. They are regularly servicing their accounts,” said the chairman of a public sector bank.
A senior executive of a public sector bank said: “Free power to certain sectors, or subsidised supply of power, has been a major reason of stress to the SEBs.”
“A common practice is assuring free power to certain sectors such as agriculture to win votes cause the financial burden on the boards, thereby highly damaging their repayment capacities. Ideally state governments should pay up for the subsidies but most states leave electricity boards to manage the problem created at political level,” added this executive.