Coalgate: Banks may be hit by Rs. 3L-cr in bad loans | business | Hindustan Times
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Coalgate: Banks may be hit by Rs. 3L-cr in bad loans

business Updated: Oct 13, 2014 02:05 IST

Indian banks are bracing for the fallout of the coal block allocation scam.

As the government gears up to pursue the issue of reallcocation of coal blocks after the Supreme Court judgement last month, banks are staring at the possibility of most of their Rs. 3 lakh crore exposure to the sector turning into non-performing assets (NPAs) — loans that do not yield returns.

The apex court last month cancelled 214 blocks allocated since 1993.

According to a note sent to the coal ministry by the finance ministry, “if coal is not made available to the companies/project as per the sanctions or arrangements, it will seriously impact the asset quality of the loan accounts, rendering them NPAs.”

This would deprive banks of their interest income and may call for additional provisioning, the note said.

The banking sector has exposure of rs. 5.01 lakh crore to the power sector. The exposure has grown from 4.3% of non-food credit in March 2008 to 8.83% in the June 2014. “During the same period the banks had financed many new power projects, which may be negatively impacted by the SC verdict,” the analysis said. “If these project fail to take off, banks will have to either write-off or classify them as NPA.”

The finance ministry is keeping a close watch on the situation. Banks have been directed to come up with concrete alternative plans to ensure that the impact of such NPAs, if any, is minimal and there is no further pressure on the asset quality of the banks.

An internal research by the State Bank of India projected the total demand for coal in the country at 787 million tonnes for 2014-15.

“There is should not be any major concern, as the government has assured supplies would not be disrupted... if the issue is addressed appropriately, there should be no major impact on lenders, though there could be some temporary setback,” Soumya Kanti Ghosh, chief economic adviser, SBI told HT.

Last month, the Supreme Court ordered the cancellation of 214 coal blocks. Forty-six of these have been given six months to wind up their businesses — of these, six had just got permission to open mines, while 40 had begun production.

Axis Bank, ICICI Bank, HDFC Bank and Yes Bank among others are assessing the impact of the verdict on their assets.

India’s banking industry has witnessed a surge in the level of NPAs in recent months. Bad loans touched Rs. 2,45,809 crore in 2013-14 from Rs. 1,83,854 crore in 2012-13 and Rs. 1,37,102 crore in 2011-12.