These non-bank finance companies (NBFCs) are already affected by the slow resolution of their stressed thermal energy assets, according to rating agency ICRA. The segment's total exposure to the RE segment was pegged at Rs 90,000 crore at end-September. The trajectory of total infrastructure credit in India (from banks and infrastructure NBFCs) had flattened in the six months ended September 2019, the first half (or H1) of financial year 2019-20. While infrastructure credit grew 19 per cent in 2018-19, to Rs 21.1 trillion, it rose only marginally to Rs 21.2 trillion in H1 of 2019-20.
The uncertainty regarding rates in some southern states has led to rating downgrades for power companies that have raised money from lenders. The ratio of the number of upgrades to the number of downgrades in the power sector declined to less than one in H1, due to the increase in the number of downgrades in RE. This is due to liquidity issues being faced by the developers, given the payments from electricity distribution companies in Andhra, Telangana and Tamil Nadu, said ICRA.
There is also concern on the uncertainty regarding resolution of rate issues for wind and solar power projects in Andhra. The ratio was above one during FY15 to FY19, led by upgrades for entities in the RE sector, primarily wind and solar segments.
ICRA says progress on stressed thermal asset resolution has been slow, despite measures by the central government and lenders. Only about 10 per cent of the stressed capacity has achieved resolution; another four per cent has been resolved but remains under stress. Recently, about a fifth of the affected capacity had got admitted to the insolvency tribunal. Overall, about 38 per cent of the stressed capacity has been admitted in or referred to the tribunal, the rest being under resolution by the lenders.
The stress related to thermal power has already been recognised in their accounts by the infrastructure finance companies (IFCs). However, any stress build-up in the near to medium term from a spillover due to headwinds faced by the RE sector remains a concern.