Credit deployment to power, telecom sector declining: ASSOCHAM

An ASSOCHAM paper noted that with a declining appetite for both lenders and borrowers in debt-ridden sectors like power, telecom and mining, the deployment of bank credit to these has witnessed a plunge and the trend may continue unless the basic issue of red mark in the balance sheets of banks by way of Non-Performing Asset (NPAs) and the corporate firms in the form of back breaking leverage is addressed.

Analysing the data provided by the Reserve Bank of India (RBI), the paper noted that the mining sector, battling slowdown in demand and pricing power , saw a maximum of de-growth in deployment of bank credit in the financial year 2016-17 , from Rs. 390 billion to Rs 345 billion in March, 2017.

Like mining and quarrying, including coal, the bank credit in the power sector saw a contraction of 9.4 per cent to Rs 5256 billion as of March, 2017 from Rs 5799 billion a year ago.

The sector is battling issues like high debt level, low prices of merchandise power, unwillingness of the state-owned distribution firms to revise tariffs and a potential competition from solar energy, which , backed by government subsidy, has seen the generators made bids for solar energy as low or even lower than the conventional sectors.

"Aggressive bidding for spectrum and intense competition for tariffs have brought the telecom sector as well to such a pass that the bank credit to the telcos is decreasing. It has become a game of deep -pockets but those pockets cannot be filled by borrowed money always," said D S Rawat, Secretary General- ASSOCHAM.

The bank credit to the telecom sector during 2016-17 dropped by 6.8 per cent to Rs 851 billion from 913 billion, adds the paper.

On the positive side, however, iron and steel sector recorded a 2.6 percent growth, from Rs 3155 billion to Rs 3195 billion. The paper attributed this growth to certain policy measures like restrictive imports from China.