NEW DELHI: The power industry, which had earlier challenged Reserve Bank of India’s (RBI) circular on stressed assets issued on February 12, 2018, came out in support of the revised circular announced by the central bank on Friday. The new circular gives an added 30-day window for review before a resolution plan has to be compulsorily brought in for a defaulting stressed borrower.
Revising its one-day default norm, the RBI now says that lenders should review the accounts within 30 days of default. Calling it a holistic and workable framework, Ashok Khurana, director general of Association of Power Producers (APP) said that “no mandatory referral to IBC (Insolvency and Bankruptcy Code) and the new consent threshold is more practical than IBC, which prescribes 100 per cent and will help in faster resolution of bad loans”.
The new guidelines also say that in cases where the resolution plan is to be implemented, all lenders have to enter into an inter-creditor agreement, which stipulates requirement of creditors’ consent for a resolution plan as 75 per cent by value of total outstanding credit facilities (fund-based and non-fund-based) and 60 per cent by number.
The inter-creditor agreement, mandatory amongst banks, financial institutions, non-banking financial companies and asset reconstruction companies, provides for a way forward for dealing with dissenting bankers as well, Khurana added.
Debt worth Rs 3.8-lakh crore across 70 large borrowers came under the IBC for resolution after the RBI issued the circular on February 12, 2018. Of this, nearly Rs 2 lakh crore was across 34 borrowers in the power sector. APP was the first to challenge the RBI February 12, 2018 circular in the Supreme Court.
Several power companies such as Jaypee Group, Essar Power, GMR Energy, KSK Energy, and Rattan India Power and Independent Power Producers Association of India also challenged the validity of the circular in various high courts, seeking a stay on insolvency proceedings, stating that the circular will only accentuate the already existing grave problems afflicting the sector’s health.