is creating a policy of lending to coal miners ahead of historic auctions that would end decades of the state’s monopoly on fuel, according to a person with knowledge of the matter.
Long-term drawdown contracts ensuring that demand will be at the heart of any lending decision, the person said, asking not to be identified until terms are finalized. The country’s largest bank would prefer a loan term closer to five years, the person added.
The envisaged policy suggests that SBI is willing to provide part of the funding needed to put 41 coal mines with a combined annual production capacity of 225 million tonnes in private hands. The giant bank has raised concerns about the sector, and Indian banks are limiting lending to corporate borrowers as the coronavirus pandemic puts a strain on asset quality. SBI shares rose 0.8% at 2:44 p.m. in Mumbai, recouping earlier losses of up to 0.9%
Lenders are also wary of the sustained demand for coal, which is viewed as dirty fuel around the world but remains the main source of power generation in India. In Japan and Europe, several banks have announced their intention to reduce loans to coal projects.
India’s coal-fired power plants, the largest users of fuel, operated on average at 46.2% of capacity in the three months ended June, up from 63.2% a year earlier.
The state-owned MSTC Ltd. will hold the latest online auctions from October 19 to November 9, allowing private companies to mine and sell coal for the first time in nearly five decades.
An SBI representative did not immediately respond to an email seeking comment.
The price at which the coal will be sold to potential buyers will also be important in assessing the viability of the loans, the person said, adding that SBI will determine a cap on its exposure to the sector.