Banks' attempts to recover money from power companies by continuous reduction in electricity demand

Mumbai, Ta. November 14, 2019, Thursday

Power demand in India has come down to a five-year low, indicating that there are hurdles for lenders, including banks with high credit, to try to recover money from power producers.

As of the end of last year, banks' loans to coal-based power generating companies stood at a staggering 5.5 trillion loans. Demand for electricity declined for the third consecutive month in October.

Bidders will also be hesitant to come forward for a power project under dwindling power demand, said one analyst. India's electricity demand is linked to industrial activity, which fell to an eight-year low in September.

Most of the indicators in the country are pointing to the economic slowdown. Electricity companies have been under stress due to demand cuts from electricity distribution companies and bills pending for purchase of electricity, and banks are seeing delays in repayment of loans. Electricity companies are also likely to see huge reductions in loan amount with banks.

The decline in the demand for electricity has also seen an impact on the revenues of power distribution companies, ie, discos. DISCOMs are also dominated by political leaders, often causing financial strain. Electricity demand in the country has declined by 5 percent annually in October. Demand for electricity is falling from industrially leading states like Maharashtra and Gujarat.

The total demand for electricity in the country was 6 billion units in October, which was down to 8 billion units in October this year, according to the Central Electricity Authority (CEA) data. The demand for electricity in the country has been steadily declining since August.

According to government data, DISCOMs have yet to pay more than Rs 3,000 crore to power generating companies. The direct impact of this can be seen on the loans that banks have to pay, the analyst added.