Power lines hang from transmission towers on Torrens Island, South Australia. (Photographer: Carla Gottgens/Bloomberg)

Stressed Asset Framework Needs To Be Sector-Agnostic, Says Top RBI Official

The power sector will not get any special dispensation from the Reserve Bank of India on stressed assets, the central bank’s Executive Director Sudarshan Sen indicated.

“The framework we introduced is sector-agnostic,” Sen said today. “There is no dearth of sectors you would say are stressed. But the RBI's guidelines need to be sector agnostic. That is all I would say.”

The RBI official was responding to a question about the regulator rejecting the government’s request for giving more time to bankers for restructuring power sector companies.

The RBI’s Feb. 12 guidelines wiped the slate clean by doing away with resolution schemes available to the banking system in the past, and asked lenders to come up with their own restructuring plans within 180 days of a company defaulting on repayment. This was introduced specifically for assets with loans of Rs 2,000 crore or above. If banks are unable to implement a restructuring scheme within this period, the case goes for insolvency and bankruptcy proceedings.

Since the implementation of the circular on March 1, the 180-day deadline for stressed assets that defaulted ends this month. A group of power sector promoters approached the Allahabad High Court, seeking more time from the RBI.

While the court agreed to hear the petition, it advised the RBI, the government and bankers to consider their problems. However, the central bank has not given any additional time for resolution of stressed power assets.

Also read: These Are The Stressed Power Plants With Rs 1.8 Lakh Crore Debt At Risk

During his speech, Sen pointed at the need for banks to be more proactive in identifying stressed assets, even before the account starts defaulting on loans. “The debate often is that the RBI is giving too little time for banks to deal with stress. But my question is, Rip Van Winkle, why were you sleeping?”

To better deal with stress in the banking system, there is a need for bankers to move their attention from the impact on balance sheet to the realistic resolution of stressed assets, he said.

The bankers, according to the RBI official, must also adequately provide for these stressed assets after identifying them, to ensure that they are able to take an educated decision on the kind of haircut they can take on the asset when it’s being resolved.

Also read: RBI’s Stressed Asset Framework Will Worsen Power Sector Crisis, Says Parliamentary Panel