Banks will restructure coal assets post SC deallocations: Official

Banks will approach the Reserve Bank (RBI) for restructuring coal assets after the Supreme Court order cancelling coal block allocations that may impact such assets' quality, the finance ministry's topmost official said Monday.

The apex court last week cancelled 214 coal blocks allocated from 1993 to 2011, except four vested with the NTPC, SAIL and the Sasan Ultra Mega Power Project (UMPP).

"Some impact may be there, and what exactly it will be is being assessed. The banks will be talking to RBI so that they are given some kind of flexibility in restructuring those accounts," Financial Services Secretary G.S.Sandhu told reporters here on the sidelines of the annual general meeting of the Indo-American Chamber of Commerce.

"Efforts will be made to avoid these accounts from becoming NPAs (non-performing assets)," he added.

An apex court bench granted six months breathing time to mining companies to wind up their operations in the coal blocks.

The court also imposed an additional levy of Rs.295 per tonne of coal extracted from exempted or operational mines.

The Financial Services Department, that controls the 27 public sector banks, is discussiong with the coal and power ministries to ensure that fuel supply alternatives are put in place, Sandhu said.

"Banks have lent to power companies and steel plants which in turn have coal linkages with the cancelled coal mines," he said.

In a report on India's power sector earlier this year, the World Bank said the recent sharp increase in private investment and market borrowing means power sector difficulties are more likely to spill over to lenders and affect the broader financial sector.

Total accumulated losses in the sector stood at $25 billion in 2011 concentrated among discoms, state electricity Boards (SEBs) and state power departments, the report said.

According to a Moody's report, of all impaired loans at public-sector banks, 20 percent are of distribution companies (discoms), with the proportion going up to 48 percent at some of the most exposed banks.

The erstwhile UPA government had approved the restructuring of Rs.190,000 crore debt of state electricity boards in a move to turn around the finances of power distribution companies.

Under the scheme, 50 percent of the short-term outstanding liabilities would be taken over by the state governments and the remainder would be restructured by providing a moratorium on the principal and most favourable repayment terms.

Currently Delhi, Mumbai, Kolkata, Surat and Ahmedabad and the state of Odisha have privately owned discoms.

The percentage of gross non-performing assets (GNPAs) for the banking sector is expected to worsen from 3.9 percent of advances in fiscal 2013-14 to about 4-4.2 percent in 2014-15, Moody's analyst ICRA have said.

"Overall, the Gross NPAs of the banking sector (public sector banks (PSBs) + private banks) could be at 4-4.2 percent as in March 2015, as against 3.9 percent as in March 2014 and 4.0 percent as in June 2014," the report said, analyzing the performance of the 26 state-run and 15 private banks for the first quarter ended-June.