Sources report the planning of State Bank of India on creating a policy to lend to coal miners before landmark auctions. This is believed as a means to end decades of state monopoly on the fuel.
Long-term offtake contracts assuring demand will be central to any lending decision. However, the terms are not finalized yet. Being the nation’s biggest bank it is presumed to prefer a loan tenor closer to five years.
Speculations are being made that the planned policy suggests SBI is 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. The giant bank has flagged concerns about the sector, and Indian banks are reining in loans to corporate borrowers as the coronavirus pandemic pressures asset quality. SBI’s shares rose 0.8% at 2:44 p.m. in Mumbai, recouping earlier losses of as much as 0.9% 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.
On the contrary, several banks in Japan and Europe have announced plans to cut down lending to coal projects. India’s coal-fired power plants, 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. State-run MSTC Ltd. will hold the final online auctions from Oct. 19 to Nov. 9, 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, experts in the field suggest, adding that SBI will determine a cap on how much exposure it will have to the sector.