State Bank of India beat market estimate with an over 25% spike in net profit, welcomed the package offered by the government to revive the near bankrupt state electricity boards (SEBs), saying the move will go a long way in bringing financial discipline to the sector.
“We believe the package will bring about a lasting solution to the problems in the SEBs because at the end of the day discoms’ debt will get added to the state debt, which is important.
“We are looking at more permanent solutions to the issues in the power sector,” Arundhati Bhattacharya, chairperson of SBI which has the lowest exposure to state discoms, told reporters here while announcing the September quarter earnings.
The nation’s largest lender has the lowest exposure among large banks to the troubled SEBs with its overall outstanding debt to them being only around Rs 16,000 crore, out of which only around Rs 7,000 crore are to the eight of the deeply distressed SEBs, she said.
Against this, the banking sector as a whole has a huge exposure to state discoms to the tune of Rs 4.3 trillion in principal alone and the cumulative exposure with interest and unpaid dues are over Rs 5 trillion.
Announcing the revival plan on Thursday, Union Power Minister Piyush Goyal said that state discoms in Rajasthan, Uttar Pradesh, Tamil Nadu and Haryana are the biggest loss-making ones, while seven more other state utilities are stressed.
The weakest link in the power supply value chain is distribution, wherein discoms have accumulated losses of about Rs 3.8 trillion, he said.
“Our exposure to discoms is to the tune of Rs 16,000 crore and out of which Rs 7,000 crore are to the eight distressed discoms and the balance is to very well rated discoms. Out of this Rs 7,000 crore, one is stressed but that discom is not default till date.
“We have their escrow account and we have been receiving payments promptly. They also went to the earlier restructuring and they’ve tried to keep up with the norms. Therefore, our discom portfolio is not at all bad,” Bhattacharya said.
Yesterday, the Centre unveiled a massive bailout plan to revive the almost bankrupt state electricity distributors by rejigging their Rs 4.3 trillion debt besides measures to cut power thefts and align consumer tariff with cost of generating electricity.
The government approved a scheme to ease the financial crunch facing discoms, that has impaired their ability to buy electricity.
Goyal said the states can take over 75% of their debt as of September 30 and pay back lenders by selling bonds. But this will not be added to fiscal deficit of the states.
For the remaining 25%, SEBs will issue bonds. The Centre will ease rules to allow the states participating in the scheme to borrow more and help with the additional burden, Goyal said.
The rescue plan, called ‘Ujwal Discom Assurance Yojna’ or UDAY, provides “a permanent resolution of past as well as potential future issues of the sector” and empowers the utilities to break-even in next 2-3 years, he said.
“This is through four initiatives – improving operational efficiencies of discoms, reduction of cost of power, reduction in interest cost of discoms and enforcing financial discipline on discoms through alignment with state finances,” Goyal said.
The Minister said restructuring will reduce SEBs’ interest cost to 8-9% from a high 14-15% now, while their operational losses are pegged at 15% by FY19 from around 22% now.