Thursday, September 25, 2014


Roma Locuta Causa Finita: 214 of 218 coal block allocations cancelled

Rome has spoken. The case is closed. The fate of 214 coal blocks allocated since 1993 has been decided in what may be the biggest verdict so far by the honorable Supreme Court of India in an attempt towards ending crony capitalism.
State Bank of India chairman, Arundhati Bhattacharya on Wednesday said it looks forward to a “swift and transparent” bidding process of the coal blocks cancelled by the Supreme Court earlier in the day. It's not just the power companies that have to worry after this verdict. Even banks are going to bear the brunt of the apex court's decision to cancel the allocation of 214 coal blocks. State-run lender IDBI Bank Ltd has close to Rs 2000 crore loan exposure to companies affected by a Supreme Court order scrapping coal blocks but not all of it will be problematic, the lender's head said on Wednesday.
"We are assessing," MS Raghavan, chairman and managing director of IDBI Bank, told Reuters after the Supreme Court's verdict. An earlier analysis by Firstbiz had pointed out that banks’ exposure to iron and steel companies stands at Rs 2.65 lakh crore, until June 2014. That apart, banks’ exposure to power companies, which too will get partly affected, stands at Rs 5 lakh crore.
As we'd pointed out in early 2012, banks faced similar plight when SC quashed 122 2G spectrum licences granted UPA-government on the ground that they were issued a "totally arbitrary and unconstitutional" manner. Banks’ exposure to 2G loans was much less, about Rs 10,000 crore.

How the judgement could could affect the economy
 R Jagannathan, a media personality and expert on corporate governance had pointed out that the coal block verdict will affect the Indian economy at large and won't just be embarrassing for past governments. Here's what he had predicted about how this verdict could affect the economy:
One, all power plants operators will now have to pay penalties, and this has implications for power prices.
Two, the reallocation process, which the Supreme Court will take some time to decide, will lead to delays and more policy uncertainties.
Three, at a time when global coal prices are falling, domestic prices are likely to rise due to this whole process.
Four, the banks which lent money to power producers will find many more loan accounts turning sticky. They will have to rework their bad loan balances.
Five, the government may want a say in how coal blocks are allocated, since this is a policy decision that can’t be left just to the courts. This can lead to more delays if executive and courts are fighting over the issue.