Banks are enthused over the bailout package announced by the Central Government to revive state electricity distribution utilities (discoms), stating that it could relieve the stress in banks’ books and release some capital for funding business growth.

“On the face of it, this package is a plus and good news for banks. We have to see the finer details before coming to a final judgment,” Animesh Chauhan, Managing Director and Chief Executive Officer (CEO), Oriental Bank of Commerce (OBC) told BusinessLine . The bailout package which provides for State Governments to take over 75 per cent of the discoms’ debt over two years could help “release provisions for banks in respect of restructured assets”.

Simply put, many banks had treated their exposure to discoms as restructured assets and provided 5 per cent of the amount restructured in the profit and loss account. Now, when the States take over the debt of discoms, the debt would become standard asset and thereby give an opportunity for banks to write-back the provisions made earlier, explained a banking industry official.

This debt takeover by States of the restructured assets could also result in release of capital for banks.

As on date, OBC’s exposure to discoms stands at about ₹5,400 crore.

Chauhan, however, pointed out that banks may have to face 4 per cent drop in yield rates on an annualised basis. This is because the borrowing rate of discoms is likely to fall by 4 per cent due to the implementation of the package.

“So there are a couple of positives for the banks. There is also the issue of fall in yields for the bank that need to be factored in,” he said.

Meanwhile, Usha Anathasubramanian, Managing Director and Chief Executive Officer, Punjab National Bank (PNB), said that the latest discom package “looks good”, but finer details are awaited. PNB would benefit through write-back in provisions made earlier for restructured discom assets.

PNB’s exposure to discoms is estimated at about ₹9,000 crore.

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