Banks are a jittery lot these days with the Supreme Court declaring 194 coal block allocations made between 1993 and 2011 as illegal.
Power developers and lenders are worried as investments over Rs 1.5 lakh crore are at risk.
With a 70:30 debt-equity ratio for these projects, lenders have an exposure of close to Rs 1 lakh crore in these projects.
The finance ministry has said it would review the situation and soon come up with a plan to ensure that the damage is minimised even though no decision has been taken on de-allocation of any of the coal blocks. The gross non performing asset (NPA) — loans that do not yield returns — level of banks is currently over 4%.
“We are reviewing it and will soon put in place measures that would address it (the situation in case any of the blocks are deallocated),” financial services secretary GS Sandhu told HT.
The Indian Banks Association is also looking into the issue.
Companies have invested Rs 2,86,677 crore toward exploration, mining and attached end-use projects between 1993 and 2011, which is almost 3% of GDP.
“Exposure to the sector has grown from 4.3% of the non-food credit in March 2008 to 8.83% in June 2014. During the period, banks had financed many new power projects … possible cancellation of coal blocks to these projects may adversely impact the chances of loan recovery from these projects,” Karvy Stock Broking said in an analysis.
“While it is too early to raise alarm since there is no order on de-allocation, we will wait and watch. The final decision would be critical,” a senior executive at a public sector bank said.