Worried over the financial impact of the Supreme Court’s decision to de-allocate coal blocks on power and metals industry, the State Bank of India has urged the Reserve Bank of India to allow flexible lending rules including restructuring loans given to existing projects in line with revised cash flows available for debt refinancing.

In a communication to RBI Governor Raghuram Rajan, SBI Chairperson Arundhati Bhattacharya has said that the 5/25 scheme should be extended to existing projects so as to relieve the financial stress.

The 5/25 scheme will allow a bank to loan money to a developer for 25 years, with an option of rewriting the terms of the loan or transferring it to another bank or financial institution after five years. It is structured in a manner to allow the tenure of the loan to match the life cycle of the underlying asset. The scheme was announced by Finance Minister Arun Jaitley in his Budget speech. Subsequently, the RBI notified the rules, but allowed it only for new projects.

The SBI, which had an exposure of ₹92,919 crore to the power sector as of June, is concerned that the recent order on coal block de-allocation and closure of 26 mines will impact power and metals industry. “Power and metal producers who earlier had operational coal blocks are expected to witness a sharp decline in profitability post 2014-15, as they would have to substitute captive coal with imported coal, which is about 2-3 times more expensive,” stated the SBI letter seen by BusinessLine .

“In cases where the operational coal blocks have been de-allocated or raw material linkages have been suspended, the profitability and debt servicing ability of these companies may be adversely affected,” the SBI Chairperson added.

She said that the project loans may be allowed to be refinanced once by the existing lenders without attracting the attendant restructuring provisions so that the repayment tenor of project loan is in line with revised cash flows available for debt servicing.

SBI said that these measures must be taken to provide short term relief to tide over the twin problem of raw material shortages and weak pricing outlook.

The bank said that the Supreme Court judgment on May 16 on closure of 26 mines, coupled with state of partial ban on mining in Karnataka and Goa, has hit the domestic iron ore supply.

“This has impacted coal production of approximately 39 million tonnes per annum from 40 operational coal blocks and delayed production from another six blocks that were about to start production,” said the letter dated October 24.

SBI has exposure of about ₹4,100 crore to companies that will be impacted by the order quashing coal blocks. The bank had written a similar letter to the telecom regulator when the court had cancelled 122 telecom licences in 2012 as part of the 2G spectrum scam.

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