SBI plans coal-loan policy before key auctions: Report1 min read . Updated: 26 Aug 2020, 03:21 PM IST
- The report says SBI is creating a policy to lend to coal miners before landmark auctions that would end decades of state monopoly on the fuel
- The nation’s biggest bank would prefer a loan tenor closer to five years
State Bank of India Ltd. is creating a policy to lend to coal miners before landmark auctions that would end decades of state monopoly on the fuel, according to a person with knowledge of the matter.
Central to any lending decision would be the ability of the borrower to offer a long-term offtake contract assuring demand for the coal mined, the person said, asking not to be identified before terms are finalized. The nation’s biggest bank would prefer a loan tenor closer to five years, the person added.
Indian banks have reined in loans to corporate borrowers as the coronavirus pandemic threatens to put pressure on their asset quality and guzzle away precious capital. Lenders are also wary about sustained demand for coal, which is seen globally as a dirty fuel but is still the biggest source for electricity generation in India. In Japan and Europe, several banks have announced plans to cut down lending to coal projects.
India’s coal-fired power plants, the biggest users of the fuel, operated at an average 46.2% of their capacity during the three months ended June, compared with 63.2% a year earlier.
India plans to auction 41 coal mines with a combined annual production capacity of 225 million tons. State-run MSTC Ltd. will hold the final online auctions from Oct. 19 to Nov. 9, allowing private companies to mine and sell coal for the first time in nearly five decades.
A representative for SBI didn’t immediately reply to an email seeking comment.
The price at which the coal will be sold to potential buyers will also be important to appraise the viability of the loans, the person said, adding that SBI will determine a cap on how much exposure it will have to the sector.