State-owned Andhra Bank has completed the process of loan restructuring of Tamil Nadu state electricity board (TNSEB). The lender loaned to three such state distribution companies (discoms) with a total exposure of Rs 4,500 crore as per the financial restructuring plan (FRP).
According to BA Prabhakar, CMD of the bank, Rajasthan state electricity board is asking for a second restructuring and banks are deliberating over it.
"The MTM on account of that will be positive. The bond portfolio would be okay. It would not have much of a P&L impact but the overall interest earnings on these accounts would definitely come down. To that extent, the P&L will get impacted," he told to CNBC TV18 .
As per FRP those state boards will issue sovereign bonds to banks to the tune of 50 percent of the total loan exposure.
Around eight states including Rajasthan, Uttar Pradesh, Tamil Nadu, Kerala, Himachal Pradesh, Bihar, Karnataka and Haryana have showed interest for loan restructuring schemes of their respective power distribution companies. Total loans would be around Rs 1.90 lakh crore.
When a borrower is unable to repay its loans and asks for relaxation of the original terms and conditions of loan agreements, it is called restructuring or recast. This may include reduction of interest rates, a moratorium of principal repayment and so on.
Also Read: Haryana discom restructuring under process: OBC CMD
Below is the verbatim transcript of BA Prabhakar's interview on CNBC-TV18
Q: It is now clear that Rajasthan, Haryana, Uttar Pradesh (UP) and Tamil Nadu are preparing to issue bonds in place of the loans of their power distribution companies. Can you begin by telling us which of these distribution companies (discoms) you have an exposure, how much and what will the replacement of these bonds mean to your profit and loss (P&L)?
A: We have exposure to Tamil Nadu state electricity board (TNSEB) and also Rajasthan state electricity board. The TNSEB was restructured according to the financial restructuring plan (FRP), which was finalised by the government of India. It has been agreed to issue bonds, but the bonds have not yet been issued. But the terms of the bonds have been finalised.
As far as Rajasthan state electricity board is concerned, this was restructured last year, but that was before the FRP was finalised. So, now I understand that Rajasthan state electricity board is asking for a second restructuring as per the FRP and the banks are looking at this proposal.
Q: So with respect to Rajasthan, the original restructuring did not involve the state government giving bonds in lieu of discoms loans?
A: Yes. Earlier, the state government did not issue bonds or there was no agreement to issue bonds, but the second restructuring would be exactly according to the FRP of the government of India. So that would mean that 50 percent of the liability will be taken over by the state government and the electricity boards will issue bonds, which will be eventually taken over by the state government.
Q: Give us small details with regards to Andhra Bank 's exposure towards the discoms, can you highlight what your total exposure is at this point in time, how much of it is restructured, how much of it is being serviced on time and whether or not and which discoms do you currently have exposure to?
A: Total exposure of our bank is about Rs 4,500 crore. Out of that, basically to these three discoms, Andhra Pradesh (AP) discoms, the TNSEB and also the Rajasthan state electricity board. The restructuring of Tamil Nadu as I mentioned is complete. Rajasthan the second restructuring is being looked at and as far as the AP discoms are concerned, the restructuring package is being worked out, our people are working on the restructuring package.
Q: What is the impact in the P&L, for instance, you said Tamil Nadu the restructuring has been done on the FRP guidelines, if the bonds are taken over if the discoms loans are replaced by state government bonds, does it give you any relief by way of provisioning or does it create a problem because of an net present value (NPV) loss?
A: As far as the P&L impact is concerned, the whole loan was carrying an interest of somewhere around 13 percent. Now it is being brought down to an average of something like 10.5 percent if you take the average, the weighted average of the rate of interest to be paid by the discoms and also the weighted average of the bond rate - if you take that it will be somewhere around 10.5 percent. So there is going to be a sacrifice on account of cutting down the interest rates.
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