Banks eagerly await new bidding process for coal blocks

In the wake of the Supreme Court verdict on coal blocks allocated since 1993, Chairperson of SBI Arundhati Bhattacharya has said that the way forward is to have a quick plan of action to ensure uninterrupted coal supply. She has also called for a swift and transparent bidding process for reallocation of coal blocks.

The bank is less worried about its current exposure of Rs 4,000 crore loaned to the cancelled 172 coal blocks. SBI, which is like a proxy to banking sector, has an exposure of Rs 91,489 crore in the power sector. This is close to six per cent of the bank's total lending book of Rs 15,52,320 crore. The exposure to mining is about Rs 7,725 crore, of which the exposure to cancelled mines is Rs 4,000 crore. The exposure is actually is not big enough to raise alarm bells.

Amongst the banks, the mid-sized Kolkata-based UCO Bank has the highest exposure of 15-16 per cent to power sector, though the bank claims that the exposure to mining is less than one per cent. The picture for the entire sector also looks quite similar, though no credible figures are available for March 2014. As per estimates, the banking sector's exposure to power sector is seven per cent, which is roughly around Rs 5,00,000 crore.

The state-owned Coal India Limited (CIL) provides linkages to bulk of the power plants in India, whereas the exposure to captive mines is estimated to be Rs 1,50,000 crore. Out of the 176 captive mines cancelled by the apex court , there are only 42 operational mines. This means the banks' exposure to companies with operational mines (about Rs 50,000 crore) is high. However, the companies are allowed to operate these mines till March 2015. Expectations are that the Modi government will start coal block auctions before the March 2015 deadline.

Bankers say they have zeroed in on six companies with very high debt such as Usha Martin, Adani Power, GVK Power and Bhushan Steel. On the BSE , the stocks of Usha Martin has taken the hardest hit. Its share price has fallen by half to Rs 25 even since the apex court first declared the coal block allocation illegal on August 25.

The bankers say that the asset won't directly go under the non-performing asset head. There is a restructuring mechanism under corporate debt restructuring to provide relief in moratorium on interest rates and extension in repayment period. The bankers say that a delay in coal block auctions could affect coal supplies and this in turn could affect even well-run companies. For instance, Tata Power, Hindalco and Jindal Steel have healthy cash balances to overcome the losses arising out of the cancellation of mining licences.

Tata Power, which had two coal blocks , has said that the company is looking forward to a "new legally enforceable framework for coal blocks, which could be awarded at an early time".