PNB starts restructuring loans to state electricity boards

Amid rising concerns about funding for the power sector, public sector lender Punjab National Bank (PNB) has started restructuring loans doled out to State Electricity Boards (SEBs), many of which are deep in the red.

Even though banks are exercising caution on lending to the power sector, PNB today said it would continue to provide funds for existing power generation projects.

Responding to a query on lending to SEBs, PNB's Chairman and Managing Director KR Kamath said: "What we have done is that wherever we had issued the SEBs short-term loans we have restructured and converted it into long-term loans repayable over a period of time...."

"These instalments are coming regularly to us now. We have been a little proactive in handling this portfolio," he told reporters while announcing the bank's second quarter results.

Going by projections, power distribution companies (discoms) incurred a staggering loss of Rs 70,000 crore in 2010-11.

According to Kamath, PNB would continue to provide funds for projects which are getting implemented.

As per estimates, PNB has an exposure of over Rs 12,000 crore to the power sector.

Apart from poor financial health of SEBs, coal supply issues and environmental hurdles are hurting the Indian power sector. Against this backdrop, many lenders are understood to be very cautious in extending loans to the sector, which is expected to see a capacity addition of nearly 1,00,000 MW in the 12th Five-Year Plan (2012-17).

Last month, rating agency Crisil cautioned that lenders would be risking about Rs 56,000 crore unless government brings about urgent reforms in the power sector.