Banks see no short-term impact of coal verdict

The apex court's move to cancel 214 coal blocks is unlikely to have any immediate impact on the huge loans provided by banks to steel, power and coal companies. However, in the long run, it may impact banks if a perceived stress impairs the balance sheets of power and steel companies and adversely impact their repayment capacity to banks.

The Coal Producers' Association pegged a massive Rs 2.5 lakh crore worth of loans given by banks to the companies and associate companies whose coal blocks may be cancelled, while claiming that the impact on the banks would be critical.

State Bank of India (SBI) has, however, strongly refuted the figure quoted by KK Venugopal, senior counsel for the association.

In the petition to the apex court, Venugopal submitted, "Bank loans to the extent of about Rs 2.5 lakh crore given by banks and financial institutions would become non-performing assets; the State Bank of India may suffer a loss of up to Rs 78,263 crore which is almost 7.9% of its net worth for the financial year 2013; other public sector banks such as the Punjab National Bank and the Union Bank will receive a massive setback; public sector corporations like Rural Electricity Corporation and Power Finance Corporation have an even higher exposure than the banks."

However, the figures submitted by the association may be only a notional figure, and banks say that it is not substantiated on how they have arrived about the figure.

Arundhati Bhattacharya, chairman, State Bank of India, told dna, "According to our estimates loans of Rs 4,153 crore pertain to those projects whose blocks are cancelled. The loss figure of Rs 78,263 crore attributed to SBI is unsubstantiated and unverified. We strongly refute such a notional loss figure put out in the public domain."

It is still not clear what impact it will have on the balance sheet of the companies and to their repaying capacity to the banks. In fact, there may not be any impact immediately as the coal blocks can continue operations for the next six months. It will be crucial to see how fast the government is reallocating the blocks to the new bidders, say senior bankers.

IDBI chairman MS Raghavan told dna, "There will be no immediate impact as the companies have six months' time. We will have an impact to the extend of Rs 2,200 crore on account of our exposure to four power companies. In the first company, the impact will be limited as it has pass-through tariff plan. The other borrower has open access as he can sell power to anyone and remaining two borrowers have a fixed tariff plan, where we may have to give some extension in repayment which we are prepared to do."

Bhattacharya in a communique added, "We believe that uncertainty is possibly the worst enemy of growth. We are glad that this is over with the SC verdict on coal blocks allocation. We now look forward for a quick plan of action for ensuring that coal supplies are not disrupted and thereafter a swift and transparent bidding process for reallocation."

Raghavan added the steel companies were coming out of the stress but they are likely to be stressed again. "The input cost will go up but it is too early to conclude anything unless there is more clarity on the issue."

Meanwhile, bank stocks fell on Wednesday, reacting to the news. SBI fell 2.68% to Rs 2,487.40, ICICI Bank fell 1.42% to Rs 1,516.60, IDBI Bank fell 3.90% to Rs 67.55 and the Punjab National Bank fell 4.28% to Rs 926.75.