- The power sector roughly constitutes 20% of all the bad loans on the balance sheets of Indian banks.
- While the resolution of stressed power assets is an urgent priority, the government is also preparing reforms to ensure the long-term viability of the sector.
- These include the implementation of a direct benefit transfer scheme for consumer subsidies and the separation of production and distribution operations of power companies.
Much has been made of the growing pile of non-performing assets emanating from India’s power sector. A number of power companies such as Jindal India Thermal Power and Lanco Anpara are expected to be referred to insolvency courts following the expiry of a deadline for the resolution of ₹1.7 trillion worth of bad loans from the sector. This is roughly 20% of all the bad loans on the balance sheets of India’s banks.
Recognising the problems that are unique to the power sector – like a liquidity crunch and a dearth of power-purchase agreements – and the need to ensure these coal-fuelled projects don’t undergo liquidation, the Indian government is planning to establish an asset reconstruction company (ARC) to resolve stressed power assets. Read More