Real issue is to put the asset back on track: Rajan on coal row

Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday said whatever be the solutions emerging for the coal issue, it will require compensation for some of the assets that are on the ground. Last week, the Supreme Court had quashed allocation of 214 coal blocks allotted between 1993 and 2008.

The governor said there is already was a "fair amount of flexibility" in the system to deal with loans impacted by the Supreme Court order. "It will be premature to judge questions of flexibility. But whenever we have issues of flexibility coming up, the real issue is putting the asset back on track, on recovering loans, etc. Let us focus on that; the real issue is to put the real asset back on track so that loans can be repaid," he said.

Rajan said the issue would have to be worked out. He said a significant attempt to address the fundamental weaknesses in that sector and to get coal flowing again is consistent with the high reserves that India has, and could could be the silver lining in this whole issue.

"But we have to see how the legacy of the past is dealt with. Whatever solutions emerge will require, in a sense, compensation for some of the assets that are on the ground," he said.

Echoing this, Arundhati Bhattacharya, chairman, State Bank of India (SBI), said the silver lining was that and probably at long last, "we will see efficient allocation and efficient utilisation of coal reserves".

She added there was absolutely no reason why "we as the fourth largest reserve holder in the world that we are importing coal". However, she said in the interim there will be issues related to how the linkage is going to be given, at what cost and for those who have sunk money into these projects, how they are going to be reimbursed.

"What needs to be seen is the speedy and clear action by government on this front. I am told the government is gearing up to have something available by the end of October. That will determine going forward what will be the impact on accounts," she said. With respect to the mines, Bhattacharya said many of the bigger groups will manage to pull through.

On the Rs 295-per-tonne penalty, she said they were not expecting that even if they have to give it, it'll all have to be done on Day One, adding that they are not pressing all the panic buttons now.

The Supreme Court cancelled all but four coal block allocations, made by successive governments over two decades, on the grounds of illegality under the Coal Mining Nationalisation Act. The decision is estimated to impact around Rs 2.85 lakh-crore worth of investments linked to the 214 coal blocks and their end-use plants.

Chanda Kochhar, managing director & chief executive officer, ICICI Bank, said the two positives that one should look at is that one they are saying the mines would not stop functioning and second, clearly there is a date out to find the solution.

"The biggest focus should be on how the entire decision making machinery gears up to find the solution in that much period. If those solutions come out on time, that will allow the assets to keep operating," she said. Kochhar added that it is too premature to panic about it.