Bank Loans, a commonly used word in India. Every other Indian keep on talking about their home loan, car loan, education loan, business loan, etc on a daily basis. Loans are always an entity that doesn’t let anyone sleep properly, be it the loaner or loanee.
Currently, the bank loans fraud and defaulters count are increasing exponentially. Every now and then we are hearing bank defaulters’ names in the news be it Nirav Modi, Vijay Mallya, etc. Out of $178 billion bank loans and other debts in India Power Sector, 30% loan is stressed. Stressed loans are nothing but a loan where the loanee is either declared bankrupt or default.
Now, an abandoned power plant in Jharkhand is setting a red flag for banks to face $38 billion additional bad loans. Deep down in the jungles of Eastern India, 5 years back a Power Plant was planned that had abundant coal and water in the area and a rail track was all set to run in the premises. The allurement of 1080 megawatts of electricity was promised in a country like India facing Power shortage and frequent blackouts. This all lured the Financial Institution, State Bank of India to loan $700 million to build it. Now, this Power Plant stands abandoned and deserted Indian banks have had to write off three-quarters of their loans.
Merrill Lynch, Bank of America stated that local banks are going to face a new loss wave of $38 billion which is 4 times more than the previous bad loans wave of $9 billion.
Asset Reconstruction Co. of India Ltd is the company which bought the Plant from the creditors in 2015 about 2 years after the construction stopped. Vinayak Bahuguna, the chief executive officer of Asset Reconstruction called this bad loan as “largest bad-loan risk in the country”.
Just now when banks are trying to recover loans from Steel Companies, Power Plants loans are emerging as new “Pain Points”. This power plant is giving chills down the spines of Financial Institutions with the weight of loan amount it carries on its shoulders. Let’s see how this warning sign is going to be the biggest nightmare for the Local banks and the institutions recover the loaned amount.