PNB Removes NPA Tag from IL&FS Tamil Nadu Power Project

In a significant relief for the debt-laden IL&FS Group and its lender as Punjab National Bank (PNB), the lead banker to IL&FS Tamil Nadu Power Company (ITPCL), has reclassified the loan accounts of ITPCL as standard from non-performing asset (NPA). This move, which will become effective on July 29, 2025, leaves lenders with an opportunity to recover nearly ₹6,000 crore of written-off loans and brings a change in the financial direction of the long-contested project.

Background: Debt Restructuring

ITPCL is among the key subsidiaries of IL&FS Energy that owns and operates a 1,200 MW coal-based thermal power plant in Cuddalore, Tamil Nadu. The company was already facing financial difficulties as part of the broader IL&FS group crisis, which began in 2018 and shook the financial markets while raising questions on the viability of long-term infrastructure lending models in India.

ITPCL's outstanding debt was ₹9,587 crore at the end of March 2023. This debt was restructured comprehensively in September 2023 and divided into a sustainable and unsustainable component. The debt was considered sustainable at about 65% with repayments stretched to FY38 to provide repayment flexibility. The unsustainable balance was then charged at a nominal interest rate of 0.001% and was to be paid off as a lump sum in FY39 and FY40.

An IL&FS spokesperson confirmed: The overall debt exposure of the 12-member lenders consortium and the unsecured lenders, was ₹9600 crore, which was fully restructured into sustainable and unsustainable parts. Following the successful restructuring in September 2023, ITPCL repaid the amount of ₹3,600 crores, including about half of the sustainable debt and repayment of the unsustainable component on an accelerated basis. The current outstanding debt is approximately ₹6,000 crore.

Progress Amid Ongoing Challenges

The reclassification to standard happened nearly seven years after the initial defaults. It is a great achievement of IL&FS and its lending network, which proves the present resurgence of the group. However, the future remains dependent on regulatory support, cost management and further development of corporate governance and reorganization of operations.

Unit I of the Cuddalore power plant has a long-term power purchase agreement (PPA) with the Tamil Nadu Generation and Distribution Corporation (TANGEDCO) until September 2028, providing a steady revenue stream. Quite the opposite, Unit II is in the merchant market, which puts it at risk of fluctuation in electricity tariffs. The favorable short-term power prices had boosted the plant load factor of the Unit II to 70 percent in two years, but the recent decline in the tariffs has cast doubt on future profits.

High costs of generation, which have been persistent due to the use of imported coal and costly inland logistics, have been one of the issues. The PPA-backed Unit I cannot pass through the fuel costs and this translates to an under-recovery of approximately ₹0.80 per unit during the first half of FY25. Section 11 of the Electricity Act had granted temporary relief, which enabled TANGEDCO to recover higher energy costs, but that was to expire in February 2025.

Strategic Initiatives to Strengthen Finances

To address the cost pressure, ITPCL has initiated the construction of a captive jetty to reduce the cost of transporting coal by ₹0.15-0.30/unit. When this ₹200 crore facility is commissioned, it is likely to enhance the competitiveness of ITPCL, although the volatility of input costs is a potential problem.

On the financial front, the liquidity of ITPCL has been boosted greatly following the recovery of ₹2,100 crore in overdue payments by TANGEDCO, through the Indian government Late Payment Surcharge (LPS) scheme, with an expected annual recovery of ₹540 crore until FY26. By November 2024, the liquidity position of the company was ₹2,100 crore, which further supported its turnaround initiatives.

In January 2025, ITPCL's credit rating was upgraded by ICRA to BB (Stable) due to better liquidity, earnings visibility and successful execution of its restructuring roadmap. However, its total debt to EBITDA ratio stands at 4.5x and its interest coverage at 2.2x, highlighting the continued financial pressures.

Looking Ahead

Industry analysts and bankers consider the removal of the NPA tag and debt restructuring as a step in the right direction for the troubled IL&FS group. Nevertheless, the fate of stakeholders depends on regulatory clarity, long-term revenue generation and cost control. The resolution activities highlight the nuances of resolving stressed infrastructure assets in India and can be used as a precedent in future resolution frameworks.

Although the path of ITPCL is a good indicator of positive developments, the complete resolution is an ongoing process, which is a subject of both internal changes and market forces.