Last week, SBI said banks will soon come out with a plan to resolve Rs 70,000 crore worth of non-performing assets (NPAs) in the power sector
Power Finance Corporation (PFC) is working with the country’s biggest lender, State Bank of India (SBI), and others to resolve 11 stressed power projects among other resolution plans.
The state-owned power financier today said that under the SBI Samadhan Scheme, they are working out to bifurcate the good projects backed by the government’s power purchase agreements (PPAs) to be taken over by a new power developer or company.
“Under the scheme, we are working with the bank to resolve 11 power projects which are NPAs, of which we are the lead lenders in four projects. SBI will appoint two rating agencies (Crisil and India Ratings). They will give ratings and find out what will be the sustainable and unsustainable debt,” said Rajeev Sharma, Chairman and Managing Director of PFC.
Of the unsustainable debt, the lenders will select a new developer (mostly government-owned, like NTPC Ltd), who will get 51 percent equity while the remaining 49 percent equity will be distributed between the present developer and lenders, he added.
Although he did not clearly mention the total quantum of the 11 projects, a senior SBI executive last week informed that banks will soon come out with a plan to resolve Rs 70,000 crore worth of non-performing assets (NPAs) in the power sector through operation and maintenance (O&M) contracts.
Stressed assets to the tune of over Rs 1.8 lakh crore in the power sector have been a cause of concern for most lenders.
As per the SBI Samadhan Scheme, the lenders will get maximum portion of the unsustainable portion and the sustainable portion will be selected based on their availability of the PPA and other features of the project which will provide a good value, he added.
About Rs 23,000 crore are NPAs because of Reserve Bank of India (RBI) norms and Rs 36,000 crore, which were declared restructured, of which 90 percent have been reversed in FY18 and 10 percent will be reversed to standard accounts this year.
At a time when over 40,000 MW of power plants are already unviable for want of fuel or PPAs, on February 12 this year, the RBI abolished half a dozen loan-restructuring mechanisms and set out a new framework with a stringent 180-day timeframe for banks to agree on a resolution plan in case of a default. Failing that, they will have to initiate insolvency proceedings against the defaulter.
This substantially increased NPAs for most lenders, including PFC.
For PFC, of the total Rs 2.79 lakh crore of loans as on March-end 2018, net NPAs are at 7.3 percent or about Rs 19,200 crore are government-related projects while 1.6 percent are private sector power projects.
“We are trying to resolve the projects, helping the government project NPAs to reduce from Rs 19,200 crore to Rs 12,000 crore and further down to Rs 7,200 crore,” Sharma said.
According to Sharma, there are various ongoing resolution plans both through and outside the insolvency court, the National Company Law Tribunal (NCLT). “There are nine projects worth Rs 8,100 crore being resolved through the insolvency process while almost over Rs 30,000 crore outside of the insolvency process.”
He added that apart from working with state governments such as Maharashtra and Uttar Pradesh to take over select power projects, PFC has also seen good expression of interest in assets outside of NCLT such as KSK Mahanadi project, Jhabua Power and Essar Mahan.
Among other projects, such as RKM Powergen and Rattan Amarvati are under restructuring, while a resolution plan is underway for Essar Transmission, India Power Haldia, RS India and Astonfield.
For now, PFC also plans to increase its financing to the renewable sector which has seen exposure at six percent, up from one percent previously and plans to increase this to 15-20 percent by 2020.