Power ministry wants RBI to direct banks to follow strict norms in lending to discoms

The Union power ministry is planning to ask the Reserve Bank of India (RBI) to direct public sector banks (PSBs) follow strict prudential norms when it comes to lending to discoms, power secretary Alok Kumar said. The loss-making power distribution companies (discoms) are a sticky burden on government finances as they need recurrent bailout packages.

Prudential norms for Power Finance Corporation and Rural Electricity Company (PFC-REC) — the principal sources of loans for the discoms — have already been tightened, and the public sector banks will be made to follow similar standards. According to sources, discoms’ outstanding borrowings were to the tune of Rs 5 lakh crore as at end-FY20, and more than a fifth of this is in the form of state government loans.

There is also a plan to include representatives from PFC-REC on the boards of the discoms to which the exposure of the sector-specific lenders is large, Kumar said while addressing a workshop on the latest discom scheme organised by the India Energy Forum.

The funding under the latest Rs 3-lakh-crore revival scheme for discoms approved by the Cabinet in June is contingent on them committing to undertake infrastructure creation such as feeder separation and replacement of old lines.

The scheme also requires the state governments concerned to agree to pay subsidies on time, clear government dues and state electricity regulators to implement annual tariff revisions and create no ‘regulatory assets’ or recoverable discom expenses which regulators acknowledge as pass-through costs, but are not immediately built into tariffs.

The new bailout scheme for discoms hinges a lot on private investments in distribution infrastructure. For the scheme to be implemented in the five years to FY26, the Centre will fork out Rs 97,631 crore, and the balance funds have to harnessed by the discoms via assorted means, including borrowings, but ideally through public-private partnership mode ventures.

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