The Reserve Bank of India today indicated to the finance ministry that its Feb. 12 circular on a new framework for stressed assets provides enough space for resolution of bad loans in the power sector, according to Financial Services Secretary Rajiv Kumar.
“The RBI maintains that the circular doesn’t stop restructuring within the given time frame, even if there’s a default,” Kumar said. He chaired a meeting of ministry officials and representatives of the power sector in New Delhi. The central bank feels that if bankers have a resolution plan for stressed assets, they should stick to it, he said.
“The issues of quality of equity along with the availability of finances, willingness of bankers to restructure and also the sectoral issues of the power sector, if taken together, the circular [RBI’s] gives space to bankers for restructuring,” he added.
The Allahabad High Court had directed the finance ministry to work out a solution for resolution of stressed assets in power sector, as the industry feared the new regulations would push power projects with a capacity of about 60,000-70,000 megawatts towards bankruptcy.
In its circular dated Feb. 12, the RBI withdrew all existing stressed asset schemes and the joint lenders forum mechanism. Banks were told that they must start working on a resolution plan even if an account is overdue by a day. Failure to come up with a resolution plan in 180 days would lead to the account being referred for insolvency proceedings.
There are 34 coal-fired power plants that are currently stressed, according to a report by Parliamentary Standing Committee on Energy. The power industry representatives have asked for differential treatment for the sector which was rejected by the RBI, Kumar said.
AMC For Stressed Power Assets
There was also a suggestion to form an asset management company under the ‘Pariwartan’ scheme by Rural Electrification Corporation Ltd., Kumar said. The scheme is inspired by the Troubled Asset Relief Programme which was introduced in the US during the 2008 financial crisis, reported Mint newspaper on Friday.
The REC has identified projects with a total debt of around Rs 1.8 lakh crore as part of the scheme, which will be housed under an asset management and rehabilitation company and jointly owned by financial institutions, the report said.
Task Force Sought
At the meeting, industry body Independent Power Producers’ Association Of India suggested the formation of a task force to analyse the issues plaguing the sector and formulate an action plan for revival of stressed assets based on the recommendations of Parliamentary Standing Committee on Energy.
“We’re looking for a moratorium from the RBI where sectoral issues can be resolved by the government,” said Harry Dhaul, director general of IPPAI. “There was a broad consensus on the need for a task force.”
The industry body said in a written submission that till the recommendations of the task force are implemented to revive stressed assets, no coercive action should be taken, including steps outlined in the RBI’s Feb. 12 circular, except in the case of wilful default.