Court Allows Bankruptcy Action Against India Power Producers

(Bloomberg) -- An Indian court rejected a plea by the nation’s power producers to exempt generators from central bank’s rules on repaying loans, according to the Independent Power Producers Association of India.

The court’s order allows lenders to start bankruptcy proceedings against defaulting generators, officials with knowledge of the matter said, asking not to be identified as they were not authorized to speak to the media. The court asked the government to discuss with the Reserve Bank of India on possibilities of relaxing the rules for the power sector, Harry Dhaul, director general of the lobby group, said by phone.

In February, India’s central bank, battling the world’s worst bad-loan ratio after Italy, introduced new rules, ordering lenders to restructure stressed debt within 180 days. Creditors were asked to initiate bankruptcy proceedings after the deadline, which ends Monday. Power generators, led by IPPAI, had challenged the RBI rules, citing cash-flow woes that make timely debt-servicing difficult.

The court also directed a government panel examining issues including fuel allocation, bad loan norms and regulations to come up with its report in two months, he said. An email to the RBI seeking comment went unanswered.

India’s banks are beset by mounting bad loans and are under pressure to resolve their stressed accounts. Banks had 5.65 trillion rupees ($81 billion) of exposure to the power sector as of March, according to a report by a lawmakers’ panel.

Facing Bankruptcy

Stressed loans worth as much as 700 billion rupees in India’s power sector are in the process of being resolved, State Bank of India Ltd. Managing Director Arijit Basu said in an interview Monday. The lender has identified 34 stressed accounts with dues of about 1.8 trillion rupees in the power sector, he said.

The new debt-servicing norms could push nearly 75 gigawatts of projects into bankruptcy, the power producers said in March, seeking relaxation in the new norms as generators are plagued by challenges including fuel shortages, delayed payment by distribution utilities that buy electricity and slow resolution of tariff claims by regulators.

Their appeals were backed by the power ministry and later a lawmakers’ panel, which said treating the power sector in the same way as others will be counter-productive.

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