Banks to soon chart out resolution plan for Rs 70,000 cr power sector loans

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Banks will soon come out with a plan to resolve Rs 70,000 crore worth of non-performing assets (NPAs) in the power sector through operation and maintenance (O&M) contracts, a senior banker told reporters May 22.

“There are 10 such projects which we plan to resolve in the next few months. These resolution plans are being worked out under RBI's (Reserve Bank of India) February 12 circular,” said a senior State Bank of India (SBI) executive on the sidelines of the post-results press conference.

The resolution plan for power assets will involve determining the “sustainable debt” levels of completed plants with existing power purchase agreements (PPAs) and coal supply arrangements and transferring it to a new entity.

Under this, banks may float the new entity which could have equity contribution from banks, alternative investment funds, the National Investment and Infrastructure Fund, pension funds and other long-term investors.

It may also employ a state-owned power company like NTPC as an operational agent to manage the company.

In the February 12 circular, the central bank had said a one-day default in debt-servicing for accounts where banks' exposure is over Rs 2,000 crore would warrant formulation and implementation of a resolution plan. If failed, within three months, the cases will have to be referred to the National Company Law Tribunal (NCLT) for insolvency proceedings.

A large part of steel sector loans – another significant source of stress – of which a large part has taken the Insolvency and Bankruptcy (IBC) route to resolution.

However, stressed assets to the tune of over Rs 1.8 lakh crore in the power sector have been a cause for concern.

Unlike the steel sector, which has good quality plants and assets, lenders fear in the absence of ready buyers, most stressed power assets would also have to get referred for insolvency proceedings and lead to large losses.

Structural issues have led to many power projects defaulting on loan repayment obligations.

SBI May 22 said power-sector loans worth Rs 10,575 crore sit on its watchlist of loans for FY19, which includes all corporate special mention account (SMA)-2 loans and stressed SMA-1 loans.

Earlier this month, Union Bank of India had told analysts it may see slippages worth Rs 5,000-6,000 crore in the power sector in FY19.

This is at a time when banks already have a huge pool of Rs 8.8 lakh crore as bad loans.