MUMBAI/NEW DELHI: Private
power companies defaulting on an estimated Rs 1.7-lakh-crore loans to 34 projects ran out of time to avoid insolvency proceedings on Monday, with the Allahabad high court refusing to grant interim relief.
The court’s decision leaves no other option for lenders but to initiate insolvency proceedings, according to the RBI’s directive to banks to initiate the same against defaulters if a resolution plan was not finalised within six months.
In February, the
RBI had tightened norms for settling bad
debt by setting timelines for resolving non-performing assets (NPAs). The circular also said even a day’s delay in servicing loans should be viewed as default and banks must identify incipient stress.
This single clause hit stressed power projects the most as they were caught in a web of woes caused by factors mostly beyond their control, ranging from delayed payments by state discoms, coal supply issues, delayed clearances, and late disbursement by lenders due to a myriad reasons. In some cases, promoters’ follies, such as bidding unrealistically low tariffs to win power purchase agreements (PPAs) and failure to put in capital, compounded the problem.
According to
SBI chairman Rajnish Kumar, neither the court decision nor expiry of the RBI deadline will have any impact on the bank’s bottom line. “Unlike the NCLT-1 and NCLT-2 list of companies, which was given by the RBI, there is no additional provisioning required in these cases. The loans have already been classified as NPAs and the provisioning requirements do not change,” Kumar said. The NCLT-1 and NCLT-2 refer to two lists, comprising 12 and 28 borrowers respectively, with borrowings of over Rs 10,000 crore, where banks were asked to start proceedings in the
NCLT.
The stressed power projects are part of Rs 3.7-lakh-crore loans that turned sour as of March 2018. The only hope for avoiding insolvency proceedings lies in the court asking the Centre to decide and take action under Section 7 of the RBI Act within 15 days. It has also asked a high-level empowered committee to decide within two months on resolution in consultation with the RBI. Section 7 allows the government to give such directions to a bank, which it may consider in the public interest, after consultation with the RBI governor.
Banks had taken 18 power projects to the NCLT. There are also eight cases which have been resolved. Another eight were referred for resolution under ‘Samadhan’ — a resolution scheme floated by the government. However, since four of these were found to be unviable, they are in for insolvency proceedings.
Sharekhan AVP (research) Lalitabh Shrivastawa said, “Of the 34 companies, there is a probability of decent resolution for loans of around Rs 70,000 crore. But for the remaining Rs 1 lakh crore, the recovery is likely to be meagre and banks may have to take a higher hair cut.” SBI,
Bank of Baroda,
ICICI Bank and
Axis Bank are among those with high exposure to the power sector.
The Allahabad HC had earlier ordered lenders to avoid acting against power producers after they sought relief against RBI’s new stress resolution norms. Also, in a relief to power producers, the Supreme Court had refused to stop Allahabad HC from hearing these petitions.
