A proposed debt restructuring package for struggling domestic power distributors will not impact India’s sovereign ratings and instead could be positive in the medium-to-long term, Standard and Poor’s (S&P) said on Monday.
The government plans to restructure part of the debt that state-owned power distribution companies owe to financial institutions, to reform the power sector and improve capacity.
According to S&P, Indian banks have a total exposure to the overall power sector of Rs. 328,350 crore, which equals 7.2% of all their loans.
The restructuring could provide the loss-making distribution companies temporary relief and help them cover costs in the short-term, S&P said, though it warned that the government needs to provide more lasting solutions to its power problems.
The country last month experienced one of the world’s worst blackouts following a breakdown of transmission grids.
The proposed debt restructuring “does not significantly affect our sovereign rating on India,” S&P said in its report.