Government-owned banks in India financed more coal power projects than renewables in 2017
A new analysis of energy project lending done on June 19, 2018 shows that majority of government owned banks and financial institutions continued to fund coal projects in 2017. The same analysis also reveals private financial companies are comparatively investing more in renewable energy (RE) projects compared to coal. The report finds that coal received Rs 60,767 crore ($9.35 billion) in lending whereas RE received Rs 22,913 crore ($3.50 billion).
Joe Athialy, executive director of CFA, said, “It seems like the government and public financial institutions are living in a bubble devoid of market forces. The shift against coal and towards solar and wind is quite well established in the financial markets now and investing in coal has and will expose public banks to further bad loans.”
The report identified and reviewed project finance lending to 72 energy projects, comprising coal-fired power stations and renewable energy generation facilities in India that reached financial close in 2017. These projects attracted total lending of Rs 83,680 crore ($12.85 billion).
Of the top 10 lenders to coal power projects, eight were majority government owned banks that collectively gave close to Rs 30,337 crore ($4.5 billion) in new and refinanced lending towards 12 coal power projects. These were Rural Electrification Corporation, SBI, IIFC, Bank of India, Bank of Baroda, Canara Bank, Punjab National Bank, and Power Finance Corporation.
Over 70 per cent (Rs 43,544 crore) of lending for coal was refinancing of existing debt for projects that have already been built or are under construction. Only a minority of lending to the coal-fired power projects, Rs 17,224 crore (28 per cent), involved the establishment of new credit, typically intended to fund new projects.
The deals that attracted the most lending in 2017 were all coal-fired power projects and were concentrated in a few states.
Were these loans to stressed or stranded assets?
Indian banks, especially the public-sector banks have been reporting very high levels of NPAs recently, after the Reserve Bank of India (RBI) made the bad debt recognistion norms stricter. Over the past four years, PSU banks have written off bad debts worth Rs 272 lakh crore. RBI projects gross non-performing assets (GNPAs) of the PSBs to reach a massive 15.3 per cent by September 2018. State Bank of India (SBI), India’s largest bank, reported its biggest ever quarterly loss in March 2018, on the back of a rise in GNPAs to Rs 223 lakh crore. A large source of bad debts in the Indian banking systed is the power sector. In September 2017, power sector accounted for Rs 11.7 lakh crore, or 15 per cent of the total credit of Rs 77.9 lakh crore.
However, in terms of stressed loans, power sector accounted for 36.8 per cent of the overall stressed loans in India. Out of SBI’s Rs 25,800 crore assets under watch list, power sector loans account for nearly Rs 10,600 crore.
Despite the high incidence of bad loans, banks are still lending to the sector – some of them even stressed assets. Out of the 12 power plants that received funding in 2017, at least two were stressed and one (Raikheda Power Station) was even highlighted as stressed in the Parliamentary Committee findings.
SBI, among other public banks, financed Rs 11,360 crore ($1,755 million) towards coal power projects whereas for RE, it financed Rs 2,162 crore ($323 million). In the financial year 2017, SBI wrote-off bad loans close to Rs 20,339 crore ($3,019 million), the highest among all public sector bank.
In contrast to coal lending, half of the top 10 lenders to 60 renewable power projects (solar and wind) were commercial financial institutions such as L&T Finance Holdings, Yes Bank, IndusInd Bank, IDFC, PFS, as opposed to majority government-owned banks. 76 per cent of RE project finance was primary finance and 24 per cent was refinancing of existing project indicating a vast growth in new RE projects in 2017.
All the lending identified was concentrated in 14 states. Of these, only two attracted no renewables lending; Jharkhand and Uttar Pradesh. States with significant renewables lending such as Karnataka, Punjab, Tamil Nadu and Telangana had no coal lending. Projects in Uttarkhand and Odisha received minimal lending overall, with no loans to coal-fired power projects and little to renewables.
In states such as Gujarat, renewables lending outpaced coal lending more than four-fold. In most other states with both coal lending and renewable energy lending, coal lending was higher than renewable lending. Chhattisgarh provides an extreme example, where coal-fired power projects attracted almost 10 times that of renewables projects in 2017.
Who’s lending to renewables?
This analysis included lending to renewable energy generation projects, encompassing hydroelectric, geothermal, wave, wind and solar power projects. However, of these different energy sources, only lending to wind and solar projects was identified in the review.
The analysis identified lending to 41 solar power projects and 19 wind power projects. The majority of the lending profiled, approximately 68 per cent was directed to solar power, with the remainder to wind power. Most of this finance (78 per cent) was ‘primary finance’ rather than refinancing an existing project. This indicates a vast growth in new renewable power projects in 2017.
The top five renewable power profects that attracted the most lending in 2017 are a combination of wind and solar power projects.
The earlier CFA study, ‘Coal Currency’, mapped lenders of 125 projects, with a total capacity of 243 GW. Out of a total available data of Rs 4,82,648 crore, Rs 51,026 crore or 11 per cent were financed by 22 international financial institutions, while the 89 per cent or Rs 4,31,622 crore. was financed by 51 national financial institutions – which include non-banking institutions, public and private commercial banks.
— India 2017 – Coal Vs Renewables Finance Analysis/CFA