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Cover Story | October 2012

Will restructuring help banking sector?

Given that the national banks and financial institutions have a larger exposure as compared to private lender and in the recent few quarters most of them have gone through restructuring process-many banks have restructured roughly 40 per cent of the debt exposure to the sector. Public sector banks also have reported that their non-performing assets (NPA) in account of distribution companies are minimal. So taking into account the above factors, it can be concluded that there is nothing much for the bankers in this reform package.

While rating agencies are of the view that the restructuring would hardly impact the earnings of the banks, bankers expressed mixed view - in a way skeptical about long term solution of the problem. "State government has not been able to meet the losses of the discoms fully from the time leading to the present difficult financial position. On account of this, it has become necessary to restructure the loans given by the banks to discoms to avoid such loans becoming NPA in the books of the banks, besides allowing the discoms to implement the reforms," said MV Tankasale, chairman and managing director of Central Bank of India.

The power distribution utilities loan accounts 4-7 per cent of their respective books of the banks. Indian Bank, Union Bank of India, Bank of India, Oriental Bank of Commerce and Canara Bank are among those with the highest exposures, according to a report by Bank of America-Merrill Lynch.

PFC and Rural Electrification Corporation are the key non-bank financial institutional lenders to this segment. About 65 per cent of PFC's loans are to the state sector, but most of these loans are unlikely to be restructured because they are for longer term projects.

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