RBI’s Stressed Asset Framework Will Worsen Power Sector Crisis, Says Parliamentary Panel
A parliamentary panel said the Reserve Bank of India’s new framework is pushing the power sector towards bad loans, aggravating the crisis in the sector.
Under the new guidelines, the definition of the default has been “revised with far-reaching consequences”, said a report prepared by the Standing Committee on Energy in consultation with representatives of the ministries of power, finance, and coal, the RBI, lenders and developers of the stressed projects. The framework will only deepen the crisis, it said.
It suggested sector friendly measures instead of a sector-agnostic approach. In the interest of the economy in general and the power sector in particular, the revised guidelines should be “harmonised and simplified”.
India’s bad loans crossed Rs 10 lakh crore, or 11.6 percent, of total advances as of March. Outstanding loans to the power sector, including renewables, stood at Rs 5.65 lakh crore as on March 2018, the report said citing RBI data. State-owned banks contributed nearly 80 per cent of it, and a fifth of the exposure is stressed on account of structural factors, the panel said, adding that gross bad loans in the power sector have risen steadily over the past few quarters.
The central bank’s Feb. 12 circular revised the framework for bad loan resolution. Banks will have to disclose defaults even if interest repayments are overdue by just one day and frame a resolution plan within the next 180 days. If unsuccessful, the account will proceed towards insolvency resolution.
Power producers filed a petition in the Allahabad High Court saying the RBI’s fresh norms it would push projects with a capacity of about 60,000-70,000 megawatts towards bankruptcy, adding to the pile of non-performing assets.
The efforts of the private players in developing the electricity sector has not been given due recognition, according to the parliamentary panel. “Otherwise, their genuine constraints that have led to stress might have been addressed.”
The committee said to salvage the commercially operational stressed projects, necessary instructions should be issued regarding the availability of working capital or other financial requirements of the projects that will help them to float and become standard again.
RBI Governor Urjit Patel, however, told the panel that the new stressed asset resolution guidelines have helped banks in increasing their provision coverage ratio on stressed loans. It “has just ended from 58.9 percent to 63.6 percent, which again should help banks in better managing incremental NPAs, the reported quoted him as saying. Research shows that higher and faster build-up of provisions helps in sooner resolution of stressed assets, he said.
The RBI has also given additional time to banks for making provisions for cases referred for insolvency proceeding, include power assets, according to Patel.