State Electricity Board debt recast to benefit banks, says Motilal Oswal

MUMBAI: State Electricity Board will benefit banks like Punjab National Bank, Union Bank of India and Oriental Bank of Commerce, said Motilal Oswal in a report. SEB restructuring plan will lead to higher comfort on asset quality as entire funded loss exposure will be covered into state guarantees or bond, its said.

Final details for the 50 per cent proportion getting converted into state government bonds may lead to some NPV losses and on rescheduled amount of SEBs higher moratorium period will lead to some NPV losses and with the full state government guarantee (expected) SEBs may ask lower interest rates.

State government bonds carry 1.8 per cent risk weightage and for the amount guaranteed by state government it will have 20 per cent risk weightage v/s 100 per cent+ risk weightage on loans, based on rating of SEBs currently, said the report Most of the banks have already restructured SEBs loans which led to 2 per cent standard provisioning.

However, as 50 per cent debt will be takeover by state government it will lead to release of standard provision to the extent of 1 per cent of the outstanding restructured SEB loans.