Keeping a hawk eye on rising bad loans of public sector banks, the Centre is now in discussions with state governments to ensure that debt laden discoms do not default on their loan installment due later this fiscal. It is also hopeful that the non performing assets (NPAs) of banks will lower with an improvement in credit growth and rebound in economic activities.
“State discoms were given a financial restructuring plan, which is now over. They will have to start paying to banks and the first major installment will fall due in the fourth quarter of this year. We do not want them to default at the time, so this is an advance preparation,” said Hasmukh Adhia, secretary, department of financial services.
Speaking to The Indian Express, Adhia said that the government is still concerned about the non-performing assets of public sector lenders and wants to ensure that defaults do not take place in the future that could further impact their financial health. “We are trying to prevent future default by taking action now,” he said.
Accordingly, the Centre is talking to state governments to ask them to take steps to improve the economic health of discoms, including giving them funds.
“Most problems associated in the power sector are due to the discoms. If the discoms are made financially secure, they will be able to buy power. That is being sorted out,” he said, adding that the ministry is in discussions with state governments. “We don’t expect any default on the account,” he said. According to a recent Crisil report, problems in the power generation and distribution sector impact loans worth Rs 2.65 lakh crore. The total outstanding loans to all discoms in the country is estimated at Rs 4.4 lakh crore as on March 31, 2015 and more than two-thirds of the total loan amount on the verge of becoming bad belong to six of the eight state discoms that have already signed up for the FRP.
For instance, Rajasthan state utility has to pay about Rs 8,000 crore as loan installment this fiscal and another Rs 11,000 crore next fiscal. “Rajasthan has the highest,” Adhia said. The ministry’s move comes at a time when the non performing assets of public sector banks is estimated at Rs 2.67 lakh crore at the end of March 2015 from Rs 2.16 lakh crore a year ago. Gross NPA ratio of the public sector banks (PSBs) increased to 5.43 per cent at the end of March 2015 as compared to 4.72 per cent a year ago.
Stressing that the government is keeping a close eye on NPAs of public sector banks, Adhia said it is also keeping a close tab on loans given to the sugar sector. “As of now they are not in default but their economic condition is very bad,” he said.
NPAs will continue to be a concern until the economic growth rate accelerates, he said. “When the credit growth rate is very slow then as percentage, NPAs will go up. Last year, for example, the credit growth rate was about 7 per cent. So far, this year, the indications are it is weak. So we will have to see… But the absolute number is tapering off,” he said, adding that the finance ministry is remaining vigilant over the issue to ensure that it does not come up as a “surprise”.