Rs.1.5 lakh crore loan recast for Discoms

In a recent article covered by The Times of India , it mentioned that the centre has agreed to provide loan to power distribution companies as their status at present is very low financially . In this restructuring exercise the centre has planned that state governments and the utilities take over the entire burden of Rs 1.5 lakh crore, instead of banks taking over half the liability.
The decision to restructure the power sector liabilities was taken at a meeting at the Prime Minister’s Office.The state governments will issue bonds of about Rs 1.5 lakh crore along with the discoms.
The package was approved after the finance ministry agreed to a staggered restructuring under which state governments, which will bear 50% of the burden, will issue bonds to banks in line with the dues. These bonds will fetch banks interest of 9-10% and will have a maximum 10-year term, said sources. In the process, short-term loans extended to the discoms will become longer tenure loans.
The restructuring was necessary as the discoms were under financial crunch and they are finding it difficult to pay their dues to the lenders. The state governments are not allowing to increase the electricity prices whereas the cost on the other side has gone up resulting in stagnant revenues and losses.