A motorcyclist travels along a road as smoke rises from a chimney at the Tata Power Co. Trombay Thermal Power Station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Power Ministry To Seek Rollback Of RBI’s New Stressed Asset Resolution Norms

The power ministry will seek easier bad loan resolution norms for stressed assets in the sector after an industry lobby group recently said the new rules could push power producers towards bankruptcy.

The ministry will write to the finance ministry for restoration of the earlier norms, a power ministry official who did not want to be identified said after a meeting of Power Minister RK Singh with the country’s power producers to discuss various subjects plaguing the sector and the Reserve Bank of India’s norms.

The banking regulator’s new framework lays down strict timelines over which insolvency proceedings must be initiated. In a Feb. 12 notification, the RBI mandated that banks classify even a one-day delay in debt servicing as default. For accounts with an exposure of Rs 2,000 crore or more, banks will have to ensure that a resolution plan is in place within 180 days after a ‘default’.

These norms may push approximately 60,000-70,000 MW power projects towards bankruptcy proceedings, Ashok Khurana, Director General, Association of Power Producers told reporters after the meeting. “All these projects are suffering for no fault of their own.” The association had written to RBI Governor Urjit Patel earlier this month, asking for relaxation of the default clause from one day to 180 days and extending duration of resolution plan to one year from 180 days.

The stressed power plants, both operational and under construction, are facing problems because of coal shortages, lack of longer-term or medium-term power purchase agreements, overdue payments by discoms and delays in regulatory approvals for claiming compensation, APP had written in the letter, a copy of which BloombergQuint has reviewed.

The power minister Singh today also agreed to discuss a possible bill discounting scheme with state-run lenders, Rural Electrification Corp. and Power Finance Corp., that will help power producers recover their dues with state distribution companies, Khurana said.

He added that the issue of inadequacy of coal supply was discussed and the ministry is in talks with rail ministry for supply of more rakes to the power sector.