In a stern rebuttal of the power ministry’s contention that only “external factors” are to be blamed primarily for the high incidence of stress in the power sector, the Reserve Bank of India (RBI) on Monday informed the Allahabad High Court that the industry had seen many “chronic defaulters” much before its contentious February circular. The central bank also said that many private power producers were “suppressing facts” and presenting a distorted view of the potential impact of the circular on them.
Under-construction power assets such as Athena Energy’s 1,200 MW Chhattisgarh plant, East Coast Energy’s 1,320 MW Andhra Pradesh unit, Lanco’s 1,320 MW plant in Odisha had been referred to the National Company Law Tribunal (NCLT) before the RBI’s circular that tightened the norms for bad loans recognition and resolution. The RBI’s circular stipulates a one-day default rule on term loans, which means a borrower who misses repayments for 90 days will be treated as a defaulter the very next day.
As per the circular, lenders will have to come out with a resolution plan for as many as 34 stressed power plants worth Rs 2.5 lakh crore and combined capacity of 39 GW within 180 days from the reference date of March 1, 2018 (that is, by August 27, 2018), failing which insolvency proceedings will be initiated against the debtors. The RBI has said that its timeline indeed provided a sufficient window for restructuring of the assets. While the independent power producers and the power ministry have attributed the crisis in the sector to delayed payments by discoms, irregular coal supply and regulatory delays, the RBI has said government policies like preferential treatment to state-owned power utilities like NTPC caused the problems.
The RBI is also learnt to have presented a supplementary affidavit to the court highlighting the increase in bad debt in the banking sector, vindicating the necessity of the stringent norms in its new directives, which are expected to instil discipline in lending policies. The court is slated to hear the arguments on Tuesday. The RBI has reiterated several times that the circular cannot be relaxed exclusively for the power sector assets, adding that if the government feels, it should use its powers and issue directions directly to the central bank.
The RBI is also understood to have raised the issue of the Allahabad High Court’s jurisdiction in this regard and wants all similar cases pending before high courts of Delhi, Allahabad and Madras transferred to the Supreme Court. It claimed that there is a likelihood of conflict of judicial decisions that would lead to “confusion and uncertainty for lenders, borrowers, defaulters and other involved parties”. Meanwhile, independent power producers have asked the RBI to extend the last date for finalising resolution plans for defaulting projects to November 16 from August 27, as the central bank released the list of authorised credit rating agencies only on May 21, effectively reducing the time available to implementing resolution plan by 82 days.