MUMBAI: The Reserve Bank of India’s 180-day deadline to finalise resolution plans for around 70 large accounts with a combined debt of Rs 3.6 lakh crore ended on Monday. Among the worst-affected are power producers, whose woes were accentuated with the Allahabad High Court refusing interim relief against the RBI’s February 12 circular setting the six-month deadline. Now, all eyes are on the Supreme Court, which will hear a related petition (which the RBI filed in the past) on Tuesday.
While banks are burning the midnight oil to trouser last-minute resolution plans, it isn’t check-mate yet for defaulting borrowers, including stressed power assets, as once the NCLT process begins, creditors get an additional 180 days to suit up another revival plan, before pressing on the liquidation button. Of the 70 accounts, over 35 comprise power, with the rest being from telecom and other sectors. Leading banks such as State Bank of India dropped hints that 20-25 accounts (including power assets) would be recast soon.
According to a Parliamentary Standing Committee report, 66 Gw of conventional energy is under financial stress and slippages exceeded Rs 1.8 lakh crore as of March. With Monday’s deadline expiring, banks will be pushing unresolved cases to NCLT benches for resolution. Private power producers say much of the stress was due to delayed payments, lack of power purchase agreements and irregular coal supply and hence sought relief from the RBI’s stringent debt resolution norms. The request was duly rejected as the central bank said it couldn’t be selective while relaxing norms for one sector. The total outstanding loans of scheduled commercial banks to the power sector (including renewables) stood at `5.65 lakh crore as of March 2018.
Starting March, the RBI tightened NPA norms forcing banks to start insolvency proceedings following debt default of loan accounts exceeding Rs 2,000 crore. As per Monday’s court order, lenders can initiate insolvency proceedings against power producers, who are free to “approach the court separately after putting the matter and facts on record”.The order will not inhibit financial creditors to proceed under Section 7 of Insolvency and Bankruptcy Code, the court noted and asked the Central government to begin a consultative process with the RBI under Section 7 of the RBI Act, under which the government can direct RBI in public interest.
What Allahabad HC said
HC allowed banks to start insolvency proceedings against defaulting power projects. The court has asked the Centre to take action under Section 7 of the RBI Act within 15 days. Section 7 states that the Union government in the public interest can give directions to the central bank from time to time
what next
Banks will have to first move the NCLT showing a record of debt default in cases where resolution plans haven’t been finalised. The NCLT bench will either admit or deny the application within 14 days. If accepted, the board and management of individual companies will be suspended and an interim resolution professional will be appointed