Following the Supreme Court’s ruling that 206 coal block allocations between 1993 and 2010 are arbitrary and illegal, banks loan exposure to mining companies owning these blocks and to power and metal companies depending on coal supply from them could turn bad.
Indian Banks’ Association Chief Executive MV Tanksale said if coal block allocations are cancelled then supply from the active among these coal fields to the power units will stop. If this were to happen then the chances of loans extended by banks’ to such units turning bad will increase.
As per Reserve Bank of India’s data, as on June 27, 2014, banks’ overall exposure to the power sector was at Rs 5.08 lakh crore; iron & steel (Rs 2.65 lakh crore); metals and metal products (Rs 90,900 crore); and mining (including coal) at Rs 36,800 crore.
The Court said the consequences of declaring the coal blocks illegal would be considered on September 1, taking into account the investments made by companies for various projects and the procedure to be adopted for cancellation.