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The Finance Ministry has called for information from public sector banks on their loan exposure to coal mining companies and companies (other than mining) which have offered coal block as collateral. This comes in the wake of the raging ‘coalgate’ scam.
Specifically, the Ministry has sought details of fund and non-fund based exposure (both sanctioned and outstanding) of the banks to the abovementioned companies and their asset classification status.
Apparently, the Ministry is concerned that such loan exposure may turn bad.
This move comes at a time when coal blocks, which were irregularly allotted to 58 power and iron and steel companies, are either being de-allocated or bank guarantees are being invoked by the Coal Ministry on the recommendation of the inter-ministerial group on coal.
Bankers say the Ministry may be seeking the information to assess the ripple effect of the de-allocation of coal blocks (which were bagged without bidding) on banks.
If a power company’s coal block is de-allocated then its operations will go for a toss. This will impact its ability to service bank loans, said a senior public sector bank official.
The above reasoning also holds good for other companies which have backward linkages to the irregularly allocated coal blocks.
Further, banks could also be hit if the Coal Ministry invokes bank guarantee on account of allottee companies not starting mining operations in the blocks allotted to them.
“Banks are caught in a bind (between the customer and the Coal Ministry),” said a banker.
Banks have far greater exposure to companies (other than mining), which have offered coal block as collateral, than to pure-play mining companies.
The Comptroller and Auditor General of India has estimated that the non-transparent allocation of coal blocks to power and iron and steel companies caused a notional loss of Rs 1.86 lakh crore to the exchequer.
Coal is a crucial input for power, iron and steel, and cement producers. Power producers alone consume about 70 per cent of the coal produced in the country.
According to Reserve Bank of India’s data on sectoral deployment of credit, as on July 27, banks have Rs 3,44,980 crore exposure to the power sector; Rs 1,97,790 crore to iron and steel; Rs 36,320 crore to cement and cement products; and Rs 36,600 crore to mining and quarrying (including coal).
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