Welcoming the Central Electricity Regulatory Commission’s (CERC) decision to raise compensatory tariff for Tata and Adani Power, SL Bansal, chairman and managing director, Oriental Bank of Commerce says the move will improve the health of the distribution companies (discoms).
Speaking to CNBC-TV18’s Ekta Batra, Bansal says that the tariff hikes announced by the CERC will bridge the gap between the manufacturing cost and revenues earned.
This will, in turn, mean that discoms wouldn’t have to convert their loans to bonds as they would be able to repay them slowly.
On the loans to Haryana discoms, Bansal adds that about Rs 750 crore was converted to bonds, but the bank won’t have any further conversion from discoms in Q4.
Below is the edited transcript of the interview.
Ekta: I wanted to start by asking you about the Central Electricity Regulatory Commission (CERC) tariff order on Tata Power as well as on Adani Power. Now, we do understand that there will be a hike of tariff by 52 paise in Gujarat, Haryana, Maharashtra, Punjab and Rajasthan. Could you first quantify what sort of exposure you have to these states and what will be the impact on banks such as Oriental Bank of Commerce (OBC) that has exposures to these discoms because of the CERC order?
A: We have got exposure in Haryana, Rajasthan and Punjab. As far as Maharashtra and Gujarat is concerned, we don’t have exposure on the discoms in these two states. This order is good. Under FRP the major issue was whether the regulator interval the tariff will go on increasing so that the gap between the revenue under cost is bridged. This is welcome step and it will improve the health of the discoms.
Reema: Since you do have exposure to a few state electricity boards (SEBs) there is high likelihood of the SEBs litigating or not accepting the CERCs recommendations of a price increase. Have you had a conversation with any of the SEBs?
A: Not yet. The order has recently come. We don’t have time to discuss all these things but certain milestones are already defined in the FRP and we expect that the discoms will follow the guidelines, whatever is decided in the FRP.
Ekta: For example in the previous quarter you’ll did have some upgrades come through simply because there were conversion of your loans towards discoms converted into bonds. Were any of the loans to Haryana and Punjab that you highlighted, that you have exposure to converted into bonds? Which were the loans that were converted into bonds in the previous quarter?
A: Punjab has not opted for the FRP. Therefore, the conversion of loans into bonds doesn’t arise. In Haryana about Rs 750 crore worth of loans were converted into bonds; that has happened.
Ekta: How much can we expect in Q4; any more conversion?
A: No more conversion is left. Everything is over. The disbursements are taking place based on the various milestones. Therefore, we need to finance 100 percent of the losses till March 13 and then 75 percent and then going forward 50 percent. So, the disbursement will take place. The conversion business is over.
Reema: Till last quarter, the asset quality was still under pressure; restructured loans of more than Rs 1300 crore, slippages above Rs 1000 crore mark. So far at least in the first two months of this quarter how would the asset quality according to you at least on restructured assets as well as the slippages compared to the previous quarter. Just the first two months of Q4 appear better than what the picture you’ll had in Q3?
A: Stress still continues in the economy and once the economy starts rebounding and showing some upward trend, then it will take six months after that for the stress to come down. There were slippages of Rs 1000 crore last quarter because of one large advance it was close to Rs 1000 crore. Going forward, over a period of one year, we are expecting slippages to be close to Rs 3500-3600 crore. Rs 2300 crore slippages are already taken place. Hence, we expect another slippage of Rs 800-900 crore.
However, we will be able to manage that type of slippages because recovery is very good this time. Crop is very good, therefore, most of the agriculture accounts which slipped in NPA category during the last quarter have already been upgraded. So, a lot of neutrality will take place and we will be in a position to contain over NPAs to the ratios.
Ekta: I just had one more question with regards to the discoms. You did mention about incremental disbursements taking place to discoms, can you just tell us how much in terms of incremental disbursements have taken place by OBC in this quarter itself or maybe in the past couple of months and secondly any sort of difficulty your facing in terms of the loans that you have possibly incrementally disbursed or is financing taking place as per schedule?
A: Financing to these three discoms who have opted for FRP and where we are the member banks in Haryana, Punjab and Rajasthan, disbursement is taking place as per schedule. We have disbursed about Rs 1200 crore in three discoms. Especially in Haryana, most of the limits are in the shape of non funds, so the disbursement is not reflected.
We are opening LCs for buying electricity from the various suppliers. As far as Rajasthan and Uttar Pradesh (UP) is concerned we have disbursed about Rs 1000 crore loans to these two discoms.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
