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Lending to power sector likely to rise

Lending to power sector likely to rise
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First Published: Sun, Jun 19 2011. 10 44 PM IST
Updated: Sun, Jun 19 2011. 10 44 PM IST
New Delhi: In an attempt to ease lending to the fund-starved power sector, the government wants to increase the exposure norms of Indian banks and state-owned firms Power Finance Corp. Ltd (PFC) and Rural Electrification Corp. Ltd (REC).
The funding ability of Indian institutions is restricted by ceilings enforced by the central bank on how much they can lend to each sector or business group.
The power ministry has moved a note for the consideration of the cabinet committee on infrastructure seeking an increase in the exposure limit of banks, PFC and REC to single borrowers from 25% of their capital and reserves to 30%. Once the committee takes a decision, it will be for India’s banking regulator, the Reserve Bank of India (RBI), to notify the new norms.
The government is worried about the funding scarcity facing the power sector, which threatens to worsen an energy deficit that is seen as a key bottleneck in boosting economic growth.
“We have moved the note for CCI’s (the cabinet committee on infrastructure) consideration. It was circulated recently. Such a move will help ease the funding requirement in the sector,” said a top power ministry official, who did not want to be identified.
PFC and REC together account for 60% of the money loaned to power companies in India.
The nation’s power sector, which is already struggling with funding shortfalls, will need $400 billion of investment during the 12th Plan period (2012-17). The 11th Plan had set a target of adding 78,577MW of power generation capacity, requiring, at current estimates, some Rs 10.31 trillion of investment. The power ministry estimates a Rs 4.51 trillion funding shortfall.
The high-powered committee is chaired by Prime Minister Manmohan Singh.
“This proposed increase is only meant for single borrowers. While right now the banks have an exposure limit of 25% for a single borrower, for PFC and REC, the exposure limit to a single borrower was increased to 25% when they became infrastructure finance companies,” said another power ministry official aware of the move.
India has a power generation capacity of 174,000MW and plans to add 100,000MW of capacity during the 12th Plan period.
Inability to meet the power demand can hurt economic growth in the world’s second fastest growing major economy. India’s power sector, already struggling to meet demand, faces some difficult years ahead with electricity requirement expected to soar by 55.5% by the end of 2017.
“If our exposure norms are increased, it would help us in lending more to a single project and help in achieving the financial closure of large size projects,” said a top PFC executive, who also requested anonymity.
Projected investment required for infrastructure development during the 12th Plan period is Rs 40.99 trillion. Half of this is expected to come from the private sector.
utpal.b@livemint.com
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First Published: Sun, Jun 19 2011. 10 44 PM IST