New Delhi, Dec 9 (IANS) Global rating agency Moody's on Monday said pressure on Indian finance companies continues to build up, with some banks heavily exposed to non-bank credit providers, hinting that India's NBFC crisis is far from over, even after a year since the troubles began when a major shadow bank IL&FS Group abruptly defaulted.
"Most Asia Pacific (APAC) banks have passed Moody's stress test on capital, except the banks in India, Mongolia, Sri Lanka and Vietnam, because banks in these jurisdictions have lower starting capital ratios and higher starting problem loan ratios," the rating company said.
Moody's Investors Service's outlook for the banking industry in Asia Pacific is negative over the next 12 months, because owing to the US-China trade dispute, which will weaken economic and trade activity in the region, and erode investor confidence.
"Weaker economic and trade conditions will lead to moderate increases in problem loans for APAC banks," said Eugene Tarzimanov, Moody's Vice President and Senior Credit Officer.
"Meanwhile, the banks' profitability will fall, because they are raising credit provisions while central banks are cutting interest rates to support economic growth," said Tarzimanov.
Nevertheless, Moody's said that APAC banks have generally maintained good capital and liquidity buffers and the probability of government support for these banks will stay high, except for the banks in Hong Kong, because the territory is the only jurisdiction in APAC with an operational resolution regime.
With recurring NBFC fiascos such as the IL&FS and the recent case of DHFL, the government has asked the Reserve Bank of India to consider several proposals to de-stress the NBFC sector, including the creation of a special fund by the central bank to buy out stressed assets of the top NBFCs.
Sources said the discussions are going on, although the central bank is not very keen on moving forward. The fund being mulled is in line with the 2008 Troubled Asset Relief Programme (TARP) of the US, under which the government purchased toxic assets and equity from financial institutions to strengthen its financial sector.
New Delhi, Aug 6 (IANS) Reduce financial and operational inefficiencies across India's power distribution sector, which as of May had accumulated massive overdue payment liabilities of Rs 1,16,340 crore to generation companies, by retiring old and expensive thermal power plants, a report by IEEFA said on Thursday.
Written by Vibhuti Garg and Kashish Shah from the Institute for Energy Economics and Financial Analysis (IEEFA), the report recommends, among other strategies, that discoms work with state governments to retire their inefficient and expensive thermal power plants as a key pathway to reducing their average cost of power procurement.
Discoms carry a total outstanding debt of Rs 4,78,000 crore or $66bn in FY2018/19.
"We suggest state-based discoms sit down with state generation utilities and review what old thermal power plants they can retire, given the state of surplus capacity," Garg told IANS.
"Many thermal power stations are old and operating at well under half their capacity, yet the states are bound by contracts to continue to pay hefty capacity charges.
"We understand that retiring power plants won't be easy as the proponents will want to make money for the life of the contract period. But in order to move forward and start to reduce the massive discom debt while enabling the states and the nation as a whole to transition to a cleaner, cheaper energy economy, the states will have to jump this hurdle."
By taking steps to retire end-of-life, expensive legacy thermal power contracts, states will reduce their losses and be in more of a position to contract cleaner, cheaper renewable power and invest in new technologies to further reduce losses such as smart meters.
Discoms have been unable to improve their operational performance even after receiving multiple bailout packages from the government in the last decade.
While there is no silver bullet to improve discoms' financial sustainability and viability, the report analyses three state-based case studies with respective recommendations on Maharashtra, Rajasthan and Madhya Pradesh, while also focusing on action the government can take now to reduce the discoms' financial burden.
These include resolving legacy contracts issues and closing inefficient plants which will result in significant savings from fixed charge payments while reducing pollution and carbon footprints.
Also, reducing cross-subsidies to decrease the burden on commercial and industrial customers and increase healthy competition while allowing for the implementation of direct benefit transfers, solar irrigation pumps, and the adoption of policies favouring the uptake of solar rooftop systems.
"There is no point in bailing out state discoms again and again without locking in a systemic improvement," said Shah.
"Absent a sustained resolution of the discom sector losses, India's overall power sector reform will be stilted and ineffective.
"The government of India should consider implementing these recommendations and if state government lending and guarantees and discom subsidies are still required, they should be tied to the performance of the states in implementing reform in their distribution sectors."
Garg said the extreme financial mess in the distribution sector is unsustainable and requires bold policy choices and government expenditure to create an economically sustainable national electricity system.
"New private competition can bring new capital and more innovation," added Garg.