Electricity distribution companies (discoms) have been an area of darkness especially for bankers. Cumulatively, discoms owe banks Rs 2 lakh crore which have so far been kept the same because the loans have been rescheduled very often. The government is making a fresh effort to wipe out this legacy burden and ensure the distribution companies dont slip into losses again.
The governments plan is to take over 50% of loans owed to banks via bonds issued by state governments that can be traded or sold. The balance 50% will be converted into long-term loans of 10 years maturity. Discoms will not have to pay interest or principal for three years and can repay the balance in the next seven years.
The banks, in the first year of the governments rescue effort, will fund 70% of discoms losses to the extent to which revenues dont fall short of expenses. In the second year, the banks will fund 35% of the losses. By the third year, the discoms will have to stop making losses. To reduce