The Rs 56,000-crore exposure of banks to the power sector could be under stress, according to a study by rating agency Crisil.
The trouble stems from two areas - mounting losses by distribution companies, which have doubled to Rs 40,000 crore in 2010-11 from 2008-09 levels.
The other cause of concern is availability of fuel and its pricing.
The Crisil study estimates that the advances to the sector will grow at 23%, based on pending disbursements and distribution losses which will have to be funded by banks, which is currently at Rs 4.8 lakh crore. Of this, 12% of the total advances, or Rs 56,000 crore, is at risk, if no reforms are made to bring the distribution companies out of the red and tariffs revised.
The gap per unit between the supply cost and the tariffs charged by distribution companies has been rising, the study mentioned.
There will have to be a 50% tariff hike in order for these power distribution companies to break even. "A 50% rise in tariffs is a tall order. This calls for tremendous amount of political will," said Roopa Kudva, MD & CEO, Crisil.
States like Bihar, Jammu and Kashmir, MP, Punjab and UP are in the highest risk category in terms of the state governments' ability to support the state power utility companies by capitalising them. Lenders' exposure to such states and the utility companies is about 40% or Rs 1.2 lakh crore.
The level of debt of distribution sector is also estimated to rise to over Rs 3 lakh crore in 2011 from Rs 1.75 lakh crore in 2010.
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