RBI is asking banks to tread with caution while giving loans to discoms

In the backdrop of mounting bad loans, the Reserve Bank of India (RBI) does not want banks to take any chances and has asked them to exercise while giving loans to power distribution companies.

The RBI, in a communiqué, told state-owned banks that any additional exposure to discoms would result in ever-greening and invite supervisory measure.

Meanwhile, the central bank has also asked the banks to put existing loans on discoms under Non-Performing Assets (NPAs).

This will add Rs 1.09 lakh crore to the existing corpus of bad loans, which had crossed Rs 4 lakh crore in December 2015.

Banks' total credit outstanding to discoms stands at Rs 4.37 lakh crore exposure.

As per the UDAY scheme, 75% of the loan would be converted into bonds by end of March 2017, while the balance Rs 1.09 crore would be treated as loans.

According to the RBI rules, the interest return on the bonds and loans would be lowered to 0.1percentage point mark over base rates of respective banks, from 14-15%.

For power distribution companies, banks will have to do an accounting treatment as a part of bonds would be classified as 'standard', or well-behaved assets, while the balance loans would be booked as NPAs.