The finance ministry has told the union cabinet that the current round of cancelling coal block allotments will cause non-performing loans of banks to jump by about rs 1,00,000 crore.
The figure was flagged at Monday’s cabinet meeting while deciding on the fate of 62 coal blocks about which the Supreme Court has asked for a status report. The CCEA was undecided on the next course of action due to the huge financial implications.
It authorised Finance Minister P Chidambaram and Law Minister Kapil Sibal to advise Attorney General Goolam E Vahanvati to seek more time from the court so that it can examine the coal ministry’s inputs before it firms up its views.
The 62 blocks were allotted between 2005 and 2008. The CBI is conducting a court-monitored probe into alleged irregularities in the allotment of 32 of them. The coal ministry has identified another 30 for an internal inquiry.
The threat of a spike in NPAs of banks comes at a time when banks are weighed down by bad loans of Rs 2,29,007 crore as on September 30, 2013, compared to Rs 1,79,891 crore on March 31, 2013 for the 40 banks that are listed on stock exchanges.
Cancelling coal block allotments would certainly mean forfeiture of bank guarantees and reneging on repayment commitments by borrowers. The impact would also be disproportionately higher on public sector banks.
Vahanvati had last week accepted in the court that something had gone wrong with the allotments and that they could have been done in a better way.