RBI pushes back against power sector; says timely restructuring possible even with default
Back in February, when the Reserve Bank of India introduced its revised framework for resolution of stressed assets, the banking sector and beleaguered companies alike were left shaking. Challenging this circular, the Independent Power Producers Association of India (IPPAI) had subsequently moved court. On May 31, the Allahabad High Court had ordered that no action be taken against the power sector under the revised framework. The court further directed the finance secretary to hold a meeting with his counterparts in the power, petroleum and coal ministries along with representatives of the RBI and the Insolvency and Bankruptcy Board of India in June to discuss ways to address issues faced by stressed power plants.
That crucial meeting took place yesterday, where the apex bank reportedly indicated to the finance ministry that its February 12 circular provides enough space for resolution of bad loans in the power sector. "RBI maintains that the circular does not stop the restructuring. Even if there is default the restructuring is possible within the time frame available," an official who attended the meeting told PTI. "What RBI is saying is that if you have resolution plan, maintain it, stick to it. The issues of the quality of equity along with availability of finances, willingness of the bankers to restructure and also these sectoral issues of the power sector as such... If they are all taken up together, their circular still gives them sufficient space to banks to restructure," the source added.
The RBI's revised framework laid out in the contested circular requires banks to identify signs of incipient stress in loan accounts and classify stressed assets as Special Mention Account (SMA), immediately on default. Furthermore, lenders now have to finalise a resolution plan in case of a default on large accounts of Rs 2,000 crore and above within 180 days, failing which insolvency proceedings have to be invoked against the defaulter.
This particularly impacted the power sector because, as pointed out by the 37th report of the Standing Committee on Energy, which was presented to the Lok Sabha in early March, the sector was already reeling. Many power plants were already under SMA-1/2 stage or on the brink of becoming non-performing assets (NPAs) due to unforeseen circumstances ranging from fuel shortage to regulatory clearances that hit their cash flows, credit rating, and the like. According to The Hindu Business Line, the Committee had also stated that there are 40,000 MW of stressed power projects across 34 projects with an outstanding debt of Rs 1.8 lakh crore.
The meeting yesterday saw the participation of the Association of Power Producers (APP) and IPPAI along with representatives of power, coal and oil ministries. A broad consensus emerged on setting up a task force of eminent experts to analyse issues related to the sector including fuel supplies, power purchase agreements and delays in payment by discoms.
During the meeting, the Rural Electricity Corporation (REC) representative also discussed the Parivartan scheme for dealing with bad loans of power sector. "We are looking for moratorium where sectoral issues can be resolved. We also suggested to set up a task force for power sector and there was broad consensus on that. However, RBI sticks to its stand on their February 12 circular," Director General IPPAI Harry Dhual told reporters after the meeting.
All the stakeholders now have time till Monday to submit their views to the Financial Services Secretary, who in turn would firm up views for further course of action. All lot is also riding on the next court hearing, scheduled for July 10.
With PTI inputs