Banks have agreed to keep interest rates below 9 per cent for extending short-term working capital loans to state-owned power distribution companies (discoms) during the tenure of the Rs 1.9 lakh crore debt restructuring scheme. This would pave the way for implementation of the Centre-approved scheme,which is crucial to bringing the discoms back to financial health.
As many as eight states have agreed to sign up for the scheme and are expected to complete the formalities and submit their formal proposals to the power ministry in a week or so.
Discoms take short-term loans from banks to meet their working capital requirements. However,banks have halted lending to utilities pending the states signing up for the debt-recast scheme. The (dispute over) the rate of interest on transitional financing to state utilities and discoms was one of the hurdles in the way of operationalising the debt-restructuring package. The RBI has now decided to keep this rate at sub-9 per cent level. With the development,I expect the process to operationalise the restructuring package will gather pace in the coming weeks, Union power minister Jyotiratidya Scindia said at the Express Groups Idea Exchange programme.
The decision should help assuage states concern that banks could charge arbitrary interest rates after they agree on debt recast.
Significantly,discoms have borrowed heavily from banks in recent years to cover their operational losses in the absence of timely and adequate tariff hikes. As a result,state power sectors outstanding loans hit Rs 1.9 lakh crore last March,forcing the Centre to put together a bailout package.
Eight states,Kerala,Himachal Pradesh,Uttar Pradesh,Tamil Nadu,Rajasthan,Bihar,Haryana and Karnataka,which account for 70 per cent of short-term liabilities,have evinced in-principle interest to participate in the debt recast for utilities.