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

Pressure Increases on India to Create Manager for $36 Billion in Distressed Debt

(Bloomberg) -- A decision by India’s top court to quash a method prescribed by its central bank for dealing with bad loans has triggered renewed demand to set up a manager for stressed power assets estimated at $36 billion.

Now that the court has voided the Reserve Bank of India’s directive on dealing with soured debt the finance ministry “should be able to form a much-needed” state-run manager to acquire power generating companies, according to a research note by BofA Merrill Lynch on Wednesday.

Fuel shortages and insufficient demand from state distribution companies have left Indian power plants underutilized, with many struggling to generate enough cash to repay debt. The government might need about $10 billion to fund the asset manager, which was proposed by a panel in July, according to estimates in the note.

To read more about the Court decision to overrule RBI’s directive, click here.

For some power projects, banks have been proposing to wait out the problems in the hopes that the situation will improve. State Bank of India, Bank of Baroda and Punjab National Bank had suggested in 2018 the creation of a new company to take over management of about 10 power projects, until demand for the assets picks up.

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