Why SBI is worried over its power sector exposure

State Bank of India (SBI) Chairperson Arundhati Bhattacharya has previously said the bank's exposure to coal blocks that have been cancelled by the Supreme Court is only about Rs 4,100 crore. This limited exposure of the country's largest bank is like a drop in the ocean (just 0.40 per cent) if one compares it with the bank's total domestic advances of Rs 10,08,530 crore as on June 30, 2014.

The larger worry, bankers say, is of the total power exposure in the books of the domestic lender. Given this background, Bhattacharya has requested the RBI to allow a 25-year scheme with a refinancing option after five years, which offers longer repayment tenures for new infrastructure projects, to be extended to existing power projects. This new scheme was announced by Finance Minister Arun Jaitley in his Budget 2014/15.

SBI has a power sector exposure of Rs 92,919 crore, which represents close to 10 per cent of the total loan portfolio. The power sector exposure is dangerously placed within the overall infrastructure portfolio. Out of the total infrastructure loan of Rs 1,53,136 crore, the power sector has a share of a whopping 61 per cent at Rs 92,919 crore.

"This is a worrying factor as there is no support from other infrastructure loans like roads, which too are facing problems," says a banker on condition of anonymity.

There is not much positive development in the coal shortage scenario. The situation has, in fact, aggravated after the Supreme Court cancelled the coal blocks. The other big issues many power producers are fighting out with State Electricity boards (SEBs) is the tariff relaxation in view of high imported coal prices.

Two major power players-Adani  Power  and Tata Power-have already invoked  force majeure clauses with SEBs for revising the power purchase agreements (PPAs).

Many banks would benefit if they are allowed to transfer loans to other banks and institutions.

The coal block auction is expected by December. There is also a proposal of allowing Coal India as a nodal agency to buy imported coal, blend it with its domestic coal and supply it to power plants by pooling both the prices. The proposal is to make available this pooled coal to power plants commissioned after 2009.

Bankers say if nothing happens, they have the option to go to corporate debt restructuring mechanism, where they have to take a cut by sacrificing interest and allow longer repayment schedules.