Power loans recast not to help ratings: S&P

Power loans recast not to help ratings: S&P

Mumbai: The Indian government’s plans to restructure bank loans to power distribution companies may not have an immediate impact on the country’s sovereign rating, which is already under pressure, global rating agency Standard and Poor’s (S&P) said on Monday.

S&P revised the rating outlook on India to “negative" from “stable" in April. S&P currently rates India at BBB-/negative, the lowest investment grade, and a negative outlook puts the rating at risk of being lowered.

Typically, a rating downgrade comes a year or so after the outlook is revised down.

“The proposed restructuring will convert half of the contingent liabilities of state governments to real liabilities. However, if a longer-term solution to India’s power woes is not found, the risk of another restructuring due to a continued deterioration in discom credit quality could raise future state and central government liabilities," S&P said.

Restructuring of loans also means that the risk of rising non-performing assets from the power sector continues for commercial banks and finance companies that lend to this segment.

“About 11% of Indian banks’ loans to the power sector (7.2% of total loans) were restructured by fiscal 2012. We expect more restructuring to follow," S&P said.

Indian banks have Rs3.3 trillion of exposure to the power sector of the Rs45 trillion total credit, according to S&P.