Smoke rises from a chimney as electricity pylons stand at a thermal power station in India. (Photographer: Dhiraj Singh/Bloomberg)

Government Unlikely To Issue Directions To RBI On Stressed Power Accounts: Finance Ministry Official

Ruling out invoking of exceptional powers to issue directions to the Reserve Bank of India, a top finance ministry official said today that the central bank should take a pragmatic view on resolving stressed assets in the power sector.

The Allahabad High Court on Monday turned down a petition by independent power producers challenging the Feb. 12 circular of the Reserve Bank of India, which specified that if a resolution was not found by Aug. 27, the accounts should be sent to bankruptcy courts.

The court also asked the government to talk to the central bank to provide relief for the petitioners using Section 7 of the RBI Act. However, the official told PTI that the section can be invoked only in exceptional circumstances and the power sector stress is too small an issue.

Also read: From Power Firms To Government-RBI Relations — Implications Of The Allahabad High Court Order

The section empowers the central government to give directions to RBI, after consultation with the Governor of the central bank, as it may consider necessary in the public interest.

Instead, the official stressed, RBI should take a pragmatic view on the issue of stressed power assets on which insolvency proceedings could get initiated.

The official said that as per the estimates of the finance ministry, only 10 companies will get impacted. Five of those companies can be revived, while the other five can be restructured through Insolvency and Banking Code, the official said.

In a bid to hasten the resolution of bad loans, RBI on Feb. 12 abolished half a dozen loan restructuring schemes and instead provided for a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.

Independent power producers had challenged the RBI order. Banks have an exposure of about Rs 1.74 lakh crore to the stressed power projects.