The Allahabad high court on Monday denied interim relief to power companies, which had challenged the Reserve Bank of India’s (RBI) 12 February circular on bad loans.
The central bank, in its circular, had tightened the norms for settling non-performing loans by allowing lenders to initiate insolvency proceedings against defaulters, besides setting timelines for resolving bad loans. Although banks were given several options to arrive at a resolution plan, they had 180 days to do so. The central bank also introduced the concept of a one-day default, under which banks have to identify incipient stress even when repayments are overdue by a day.
According to CNBC-TV18, the court has asked the central government to decide and take action within 15 days, under Section 7 of the Reserve Bank of India Act. It has also asked the high-level empowered committee to decide on resolutions within two months in consultation with the central bank.
Section 7 of the Reserve Bank of India Act states that the Union government, in public interest, can give directions to the central bank from time to time.
In an attempt to resolve the vexed issue of stressed power projects, the National Democratic Alliance (NDA) government had in July set up an empowered committee, headed by cabinet secretary P.K. Sinha, who was earlier India’s power secretary.
“The committee will look into various issues with a view to resolve them and maximize the efficiency of investment, including changes required to be made in the fuel allocation policy, regulatory framework, mechanisms to facilitate sale of power, ensure timely payments, payment security mechanism, changes required in the provisioning norms, Insolvency and Bankruptcy Code (IBC), Asset Restructuring Company (ARC) Regulations and any other measures proposed for revival of stressed assets so as to avoid such investments becoming NPA,” the government had then said.
The Allahabad high court had earlier ordered lenders to avoid acting against power producers, after they sought relief against RBI’s new stress resolution norms.
Also, in a relief to power producers, the Supreme Court had refused to stop the Allahabad high court from hearing these petitions.
The next hearing is scheduled for Tuesday.
The country’s power sector has been one of the highly stressed sectors, with close to ₹1 trillion of loans having turned bad or been recast. Around 66 gigawatts (GW) of capacity is facing various degrees of financial stress, including 54.8GW of coal-based power (44 assets), 6.83GW of gas-based power (nine assets) and 4.57GW of hydropower (13 assets).
Lenders also have an exposure of around ₹3 trillion to these assets, following slow electricity procurement over the last three-four years. According to the Reserve Bank of India, total outstanding loans of scheduled commercial banks to the power sector, including renewables, stood at ₹5.65 trillion in March 2018.
The issue caught the attention of the standing committee on energy, which in its report titled Impact of RBI’s Revised Framework for Resolution of Stressed Assets on NPAs in the Electricity Sector, earlier this month, noted that the new guidelines of the central bank will only deepen the crisis of the electricity sector.
“The committee is of the opinion that the constraints of sectoral issues should be taken into account otherwise the whole exercise will remain only a sophistry,” the report added.
The government has reviewed 34 coal-fuelled power projects, with an estimated debt of ₹1.77 trillion. Issues faced by these projects include paucity of funds, lack of power-purchase agreements and absence of fuel security.
There are also concerns that stressed projects have drawn bids for around ₹35 lakh per megawatt (MW) under the Insolvency and Bankruptcy Code, at a fraction of the ₹5 crore per MW needed to build them.
Source: Mint