PSU lender flags NPA risk as Telangana faces Rs 1,400-crore irrigation loan default: Report

According to the report, the outstanding dues have crossed the 60-day threshold and are nearing the RBI-defined limit for NPA classification.

A potential classification of Rs 1,393 crore in irrigation-related loans to Telangana as Non-Performing Assets (NPAs) may be on the horizon, according to a Times of India report.

REC Ltd, a public sector infrastructure lender, has highlighted delays in repayment from two of the State’s special purpose vehicles (SPVs). Under RBI guidelines, a loan is classified as an NPA when repayments are overdue for more than 90 days.

According to the report, the outstanding dues have crossed the 60-day threshold and are nearing the RBI-defined limit for NPA classification.

The two SPVs involved are Telangana State Water Resources Infrastructure Development Corporation Ltd (TSWRIDCL), which has an overdue amount of Rs 503 crore due by June 28, and Kaleshwaram Irrigation Project Corporation Ltd (KIPCL), which owes Rs 890 crore due by June 29.
These accounts have been categorised as Special Mention Account – 2 (SMA-2).

Under RBI norms, SMA-2 refers to loans where repayments are overdue between 61 and 90 days. If these amounts are not repaid by the due dates, the loans would move into the NPA category, which would trigger provisioning requirements for the lender and formal reporting to the regulator.

The total exposure of public sector lenders to the two SPVs is significantly higher.

According to the report, TSWRIDCL has total borrowings of Rs 10,278 crore, while KIPCL has Rs 17,232 crore in outstanding loans. These are primarily funded by infrastructure lenders like REC and PFC (Power Finance Corporation).

The current overdue amount of Rs 1,393 crore is a relatively small portion of this overall exposure, but its classification as NPA would require lenders like REC to set aside capital as a provision, which could affect their profits and limit fresh lending capacity.

The repayment track record of these SPVs has already shown signs of stress.

In August–September 2024, Telangana reportedly delayed servicing Rs 1,009 crore worth of loans, which were eventually repaid following intervention from lenders. Again in November 2024, REC flagged delays ranging between 73 to 85 days and imposed penal interest.

These repeated delays suggest that the issue may not be a one-off event but a reflection of deeper challenges in the repayment capacity or financial planning of the SPVs.

The Times of India report further added, in a letter dated June 6, 2025, REC formally raised these concerns with Telangana’s Irrigation Secretary Rahul Bojja and Finance Principal Secretary Sandeep Sultania. The letter noted that the delays were affecting the credit rating of the borrowing entities and potentially that of the state.

The situation is further complicated by the cost of past borrowings.

In December 2024, Telangana’s Chief Minister had written to the Union Finance Minister requesting a restructuring of the State’s off-budget borrowings. The request pointed out that KIPCL had raised Rs 31,795 crore from REC and PFC at interest rates between 10.75 percent and 11.25 percent, making repayments relatively expensive.

There has been no official update since on whether this restructuring request has been accepted.
If these accounts do slip into NPA, REC would have to make full provisions as per the Income Recognition and Asset Classification (IRAC) norms prescribed by the RBI, the report said.

The issue also highlights a broader concern around the growing trend of off-budget borrowing by state governments through SPVs, loans that do not appear directly on the state’s balance sheet but still carry fiscal implications.

As of now, the Telangana government has not publicly responded to the notices, and there has been no confirmation from REC on whether the pending dues have been repaid.