Lenders face risk to Rs56,000-crore power sector funding: CRISIL

The health of lenders to the power sector is under scrutiny, given the rising stress in the sector.

A new report by rating agency  Crisil says, these lenders – including Indian banks, Power Finance Corporation (PFC), and Rural Electrification Corporation (REC) – have so far shown resilient performance, but urgently need strong policy actions to reform the sector, if they are to maintain their health.

Around Rs56,000 crore (approximately $11.5 billion) of these lenders' exposure (comprising 12 per cent of their total power sector advances of Rs4,80,000 crore as at March 2011) is potentially at risk, if there is no meaningful progress on reforms in the next 18 months.

The risk to these lenders arises primarily from potential weakening in their asset quality due to two critical issues: escalating losses and debt levels in the power distribution sector, and the shortage of fuel for power generation.

Crisil estimates that the losses in the distribution segment have mounted to Rs35,000-Rs40,000 crore in 2010-11 (refers to financial year, 1 April  to 31 March), nearly doubling from 2008-09 levels.

The losses may be higher if any of their large receivables need write-offs.