The SBI (1) is creating a coal-loan policy for lending to coal miners before the auction. It would end nearly five decades of the state monopoly on the fuel.
As per an expert in the matter, central would make any lending decision based on the borrower’s ability to offer a long-term contract. The borrower could assure demand for the coal mine, added the person. The bank is preferring a loan tenor of about five years.
Indian banks have curbed in loans to corporate borrowers as the pandemic situation puts a threat on the assets which may take away the capital.
Coal-loan Policy after India Decides to auction-off its Coal Mines.
There are certain speculations about the demand for coal among lenders. It is seen as a dirty fuel globally. However, the coal is still among the most prominent source to generate electricity in India. Several banks in Japan and Europe have declared their plans to reduce lending to coal projects.
In India, the majority of the power plants utilize coal as its primary fuel. It is under operations at approximately 46.2% in this quarter’s capacity compared to 63.2% in the previous year.
India is planning to auction its 41 coal mines and an annual production capacity of 225 million tons. The person further added that the loans’ viability would also depend on the price at which the coal is sold to the potential buyers. The biggest bank in India will determine how much exposure it will have to the sector.