Bankers who have extended loans to companies whose coal block allocations have been cancelled by the Supreme Court are a worried lot.
The main worry is that if the 42 functional coal blocks slip out of the hands of the current owners due to their inability to stump up ₹295 a tonne of coal extracted so far, then bank loans to these entities could turn sour.
Moreover, this could have ripple impact on manufacturing units (in sectors such as power, iron and steel and cement) sourcing coal from these blocks by way of higher fuel price. So, either these units have to absorb the costs or pass it on to their customers.
Reacting to the apex court judgment, State Bank of India Chairman Arundhati Bhattacharya said, “We believe that uncertainty is possibly the worst enemy of growth. We are glad that this is over with the verdict on coal blocks allocation.
“We now look forward for a quick plan of action for ensuring that coal supplies are not disrupted and thereafter a swift and transparent bidding process for reallocation.”
According to BK Batra, Deputy Managing Director, IDBI Bank, there will be no immediate impact of the apex court judgment on banks.
“It is possible that the Government could give the developers of functional blocks time to pay the additional monies.
“However, the fuel cost could rise for manufacturing units sourcing coal from these blocks,” he said. Batra explained that the power producers that have flexible power purchase agreements (PPAs) with State Electricity Boards would be able to pass on the increased fuel costs. However, those with fixed PPAs could be in a bind.