Bank loans to be hit if coal blocks are cancelled

The banking sector is facing an unprecedented crisis. News of possible cancellation of coal blocks has added to the worries of banks. But the finance ministry, in course of internal discussions with banks, has suggested that they themselves are to be blamed for the impending crisis.

According to ministry sources, the situation has arisen due to a high 'concentration risk' taken by banks. According to ministry sources, 10 large corporate houses account for as high as 13 per cent of total loan books of banks across all sectors. These firms are in similar nature of businesses, and between them, they account for 70 per cent of the planned power capacity addition. Cancellation of coal blocks will put at least eight of these 10 companies in extremely vulnerable situation.

Ministry sources told Headlines Today that to a great extent, the crisis can also be attributed to some kind of "judgement error" by banks. "In the last five years, the gross lending by these banks went up by about 20 per cent annually. But the borrowings of these 10 firms, have gone up by 40 per cent," a top official in the ministry's banking division said.

The ten companies-Adani, Essar, GMR, GVK, Jaypee, JSW, Lanco, Reliance-ADAG, Vedanta and Videocon-owe about Rs 5.5 lakh crore to banks. According to ministry estimates, the total loan amount stands at a Rs 42 lakh crore. The highest exposure to these companies come from State Bank of India, ICICI Bank and Punjab National Bank. "The panic this time around is much more than during the 2G spectrum crisis, when banks only had a limited exposure," a senior official in a leading private bank said.

Meanwhile, the ministry is deliberating on a strategy to save banks from the impending crisis. The ministry will highlight these concerns in today's interministerial group meeting.

"A lot of public money is involved. Final decision should take all these elements into consideration. We understand it's unfair of banks to pin all the blame on government policy. They should have been more diverse in allocating their loan portfolios. But nonetheless, we cannot afford any panic in our banking system. It will lead to an unprecedented chaos," the official added.

Courtesy: Headlines Today