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MAR 20 2013

Bank funds to dry up for discoms with bad credit scores from April 1

  • Economic Times, ET Bureau / Hyderabad
  • Created: Wed 20th MAR 2013

Banks and power sector non-banking financial institutions like the Power Finance Corporation and Rural Electrification Corporation will now have to follow common guidelines for lending to the sector from April 1.

The move could make it difficult for truant power distribution firms to borrow money to cover their operational losses.

Currently, banks and NBFCs are free to follow their own norms for approving loans to the sector a regulatory laxity that allows discoms to borrow beyond their repaying capacities.

The new norms, which have been formulated by the power ministry in consultation with the finance ministry, the Reserve Bank and the Indian Banks Association, will link disbursal of loans to discoms demonstrated commitment to financial discipline and will require more rigorous due diligence on part of the lenders. The objective is to put pressure on states for power reforms.

It is normal for discoms take loans from banks and NBFCs to meet their working capital requirement and finance investment expenditure. But discoms borrowed heavily from banks in recent years to finance their operational losses in the absence of tariff revision.

While banks follow RBIs prudential norms, PFC and REC go by the power ministrys guidelines that are more stringent.

The combined losses of the state power sector are estimated to have crossed R2 lakh crore, the bulk of which has been financed with short-term loans from banks.

Tags

Renewable Energy Certificates Power Finance Corporation Finance Non-Banking Financial Companies RBI Rural Electrification Corporation Rural Power India REC

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