SC verdict on RBI Feb 12 circular: Power Secy sees scope for better resolution of stressed assets

The April 2 Supreme Court verdict quashing the Reserve Bank of India (RBI) February 12 circular will provide better scope for resolution of stressed assets outside the bankruptcy process, Power Secretary AK Bhalla said on April 4.

The immediate impact of the order will be on the 12,000-15,000MW projects that had already been commissioned, but couldn't function due to the stress in the sector, he said.

The February 12 circular wasn't giving lenders time for resolution of the power sector distress. Now, he elaborated that banks can look at inter-creditor agreement for resolution. “Lenders now have time on their hands for resolution. Commissioned projects can be resolved via coal linkages and power purchase agreements," Bhalla said.

The February 12 circular had asked lenders to institute a board approved policy for the resolution of stressed assets. Banks were told to start the resolution process as soon as a borrower defaulted on a term loan and were given 180 days to cure it, failing which the account would have to be referred to the National Company Law Tribunal (NCLT).

Several companies in the power, sugar and fertiliser space had challenged the circular as ultra vires on the grounds that it wrongly classified them as wilful defaulters. They argued that they were stressed because of extraneous reasons beyond their control and could not be treated as wilful defaulters

He added that of the Rs 40,000 crore due by discoms to power companies, only Rs 22,000 crore is overdue beyond the 60-day payment schedule.

Speaking on the industry’s gripe of non-availability of sufficient coal supplies, the Secretary said sufficient coal stocks are available at mine heads and the Power Ministry has asked the Coal Ministry for a linkage agreement before the next auction.