State-owned NTPC Ltd, India’s largest power generation utility, signed a Rs10,000 crore loan agreement with State Bank of India (SBI) on Friday, making it the largest loan extended to any company by the country’s biggest lender.
 

 

 

NTPC, which has a power generation capacity of 34,584 megawatts (MW), plans to increase its installed capacity to 75,000MW by 2017 and become a 128,000MW utility by 2032.

The company’s deal with the state-owned lender comes as funding for new power projects has been losing steam.

"The number of power project financing deals in India, which had been rapidly increasing up to the early part of 2010, has now begun to slow," rating agency Fitch Inc. said in a report last month. Fitch attributed this to lending constraints on banks by the Reserve Bank of India and heightened risk awareness of power projects.

The nation’s power sector is facing an acute shortage of funds. The 11th Plan (2007-12) targeted an addition of 78,577MW of power generation capacity, requiring an investment of Rs10.31 trillion. The power ministry estimates there will be a shortfall of Rs4.51 trillion. The sector will need investment of $400 billion (Rs17.72 trillion today) during the 12th Plan.

NTPC alone would require an investment of around Rs30,000 crore annually, leading to a capital expenditure of around Rs15 trillion during the 12th Plan. A bulk of this, just over Rs1 trillion, will be raised as debt. NTPC currently has debt of around Rs37,783 crore on its books.
 

"Historically, the majority of the debt funding for new power projects has come from the domestic commercial bank loan market, plus a handful of specialized financial institutions," Fitch said. "Banks exposure to the power sector increased by 62% from March 2010 to 2011, totalling about Rs2,423 billion."
 

Indian banks, though, are at an increased risk of default on loans to companies linked to the power sector, as mounting losses of state electricity boards and delays in the execution of new power plants have made recovery difficult.

NTPC reported a net profit of Rs9,102.59 crore on revenue of Rs59,247.84 crore in 2010-11.