Long-term offtake contracts assuring demand to be central to any lending decision, with the bank preferring a loan tenor closer to 5 years
According to an insider having knowledge of the matter, the State Bank of India (SBI) is creating a policy to lend loans to private coal players before the landmark auctions that would end decades of state monopoly on the fuel. Asking not to be identified before the terms are finalized, the informer said that the long-term offtake contracts ensuring demand would be central to any lending decision, adding that the nation’s biggest bank would prefer a loan tenor closer to 5 years.
The SBI planned policy suggests being open to providing some of the financing required to put 41 coal mines with a combined annual production capacity of 225 million tons into private hands, while flagging concerns about the sector, and Indian banks reining in loans to corporate borrowers as the pandemic pressures asset quality. Lenders are also wary about sustained demand for coal, which is seen globally as a dirty fuel but is still the biggest source for electricity generation in India, with several banks in Japan and Europe having announced plans to cut down lending to coal projects. According to data, India’s coal-fired power plants, who are the biggest users of the fuel, operated at an average 46.2% of their capacity during the three months ended June, compared with 63.2% a year earlier.
The state-run MSTC Ltd. would hold the final online auctions from 19th Oct to 9th Nov, allowing private companies to mine and sell coal for the first time in nearly five decades. The price at which the coal will be sold to potential buyers will also be important to appraise the viability of the loans, the insider said, adding that SBI, whose shares rose 0.8% at 2:44 p.m. in Mumbai and recouped earlier losses of as much as 0.9%, will determine a cap on how much exposure it will have to the sector. A representative for SBI didn’t immediately reply to an email seeking comment.
