India eyes stressed management company housing bad loans in power sector

Soured loans in the sector are estimated at $26.4b.

The Indian government is said to be eyeing the creation of an asset management and rehabilitation company (AMRC) to clean up bad loans in the power sector, according to Maybank Kim Eng, as weak private sector investment has led to a slew of corporate defaults from the troubled sector. 

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Distressed loans in the power sector are estimated at $26.4b (INR1.8t) and 25,000 megawatts. They also form around 15% of the banking sector’s total stressed debt, according to Credit Suisse, higher than metals sector at 11%. However, it trails behind infrastructure and construction (19%) and IT/telecoms (20%).

“The proposed scheme aims to convert part of debt into equity,” said Maybank Kim Eng, adding that the government may hold on to the stressed assets to prevent the sale of these projects at low valuations.

The resolution of stressed assets is a positive for banks with high exposure to power sector and some specialised non-bank finance companies which are engaged in lending to power sector such as Power Finance Corporation (POWF) and Rural Electrification Corporation (RECL), Maybank Kim Eng added. 

The country's weakened banks are not in any state for any further stress as soured loans clocked in at a record $141b (INR 9.5t) as of last year alone and continues to climb steeply as the central bank tightened rules on bad loan disclosure. The volume of gross non performing assets rose from 8.93% in September to 10.4% in march brought about by rising slippages in the power and metal industries.  

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