Set up a government company to buy stressed power assets, says BofA after RBI circular quashed

By: |
Published: April 3, 2019 5:10:46 PM

he 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.

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.

READ ALSO: What’s wrong with monetary policy in India? Interest rate not the only tool, these things too matter

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.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Next Stories
1India GDP growth set to rebound this year as farmer income support boosts consumption
2Bad loans: Supreme Court ruling a big blow to banks, defaulters rejoice
3COAI expects new government to reduce levies after Lok Sabha polls