RBI circular on mandating early detection and resolution of stressed assets was termed ‘impractical’ by the power ministry and a parliamentary panel too had concurred with it, saying, many power plants were “currently under SMA-1/2 stage or on the brink of becoming NPAs (non-performing assets)” due to “unforeseen circumstances” that hit their cash flows, credit rating, etc.
The Allahabad High court’s ruling though applicable to only the petitioners under the banner of Independent Power Producers’ Association of India, is likely to be welcomed by banks who have been unhappy over the circular curtailing their freedom in dealing with stressed assets in various sectors.
The court asked the Finance Secretary to hold the meeting with his counterparts in the power, petroleum and coal ministries as well as the representatives of the RBI and the Insolvency and Bankruptcy Board of India. “We will soon convene the meeting, given the urgency of the matter, and take the power ministry on board as well for a comprehensive appreciation of the issues plaguing the sector,” a senior government official said.
The RBI’s circular requires banks to finalise a resolution plan in case of a default on large accounts of Rs 2,000 crore and above within 180 days (irrespective of sectors), failing which insolvency proceedings will have to be invoked against the defaulter. Since the deadline for the resolution of the first set of such cases is end-August, power producers have been seeking urgent relief. NPAs in the power generation sector have more than doubled to around Rs 70,000 crore from Rs 34,244 crore a year ago. About 10,000 MW power generation assets with debts of over Rs 34,600 crore are before National Company Law Tribunal, constituting 18 per cent of the sector’s exposure to lenders. Out of these assets, 8,800 MW (debt of Rs 24,000 crore) are in early stages of construction with major milestones yet to be achieved. Some large power generation projects in the NCLT belong to companies such as Lanco, Monnet Power, East Coast Energy and Essar Power.
The power producers had approached the HC for relief, arguing that the stress in the sector is often caused by factors beyond their control.
Total loans by banks to the power sector stood at Rs 5.18 lakh crore as on April 27, 2018. Power sector loans of as much as $38 billion (around Rs 2.5 lakh crore) have the potential of being written off as bad loans, as per reports of Bank of America-Merrill Lynch.