Power transmission lines suspended from electricity pylons are illuminated by the sun near the a thermal power station in Russia. (Photographer: Andrey Rudakov/Bloomberg)

$10 Billion of India Power Debt Near Resolution, State Bank Says

(Bloomberg) -- Delinquent loans worth as much as 700 billion rupees ($10 billion) in India’s power sector are in the process of being resolved, according to the nation’s largest bank, helping lenders avoid dragging seven accounts to bankruptcy court under new norms laid out by the regulator.

State Bank of India identified 34 stressed accounts in the power sector, with dues of about 1.8 trillion rupees, said Arijit Basu, a managing director at the lender. Of these, 14 have already been referred to insolvency court and for eight “the difficulties have been resolved,” he said. Twelve more have the potential to be recast and in seven of these cases -- where State Bank has an exposure of 170 billion rupees -- talks are in an advanced stage, he said.

State Bank of India “has been referring a large number of cases” to the bankruptcy courts in the past six months, Basu said. In the seven accounts being worked on, bidders have been identified, State Bank approvals are in place and other banks have been consulted, he said. “They have given their preliminary consent but we are awaiting the final outcome.”

Indian lenders have been working to recognize and restructure non-performing power assets since the central bank in February laid out a new mechanism for dealing with stressed loans. Asia’s third-largest economy is trying to clean up more than $210 billion in soured assets to boost lending and investment. About 40 of 70 companies put at risk from the central bank’s February change were in the power sector, Credit Suisse Group AG said in June.

The Reserve Bank of India in February introduced new rules and a 180-day timeline for banks to recast loans once payments are missed. Companies that were delinquent when the norms came into force on March 1 will run out of time Monday, after which lenders must start moving court to admit the cases under India’s Insolvency and Bankruptcy Code.

Given the widespread stress, power producers have approached the Allahabad High Court to prevent lenders from initiating insolvency proceedings against them. An order from the high court is expected soon after both sides concluded their arguments.

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