The government will go into a huddle with power companies on Thursday against the backdrop of the large stressed assets in the sector — 75,000 MW at last count — and a recent court directive temporarily stalling action against a clutch of firms under the Reserve Bank of India’s (RBI) toughened norms for banks regarding early detection and resolution of stressed assets. According to sources, the meeting would be attended by the secretaries of the department of financial services, and the power, coal, petroleum and natural gas ministries.
RBI governor Urjit Patel may depute a representative, not below the rank of deputy governor. The Allahabad High Court ordered on May 31 that no action be taken against stressed private power players under the RBI’s February 12 circular till the finance ministry called a meeting with relevant stakeholders. Interim finance minister Piyush Goyal and power minister RK Singh had preliminary discussions on the issue earlier this month to ascertain if a solution could be found without undermining the Insolvency and Bankruptcy Code (IBC) process. About 10,000 MW of power generation assets with loans of close to Rs 34,600 crore are now before the National Company Law Tribunal (NCLT).
Unless RBI relaxes the rules on non-performing asset (NPA) classification, outlined in its circular of February 12, the lenders will have no option but to initiate insolvency proceedings against the companies that own the power plants. According to industry estimates, about 20% of the overall Rs 10.3 lakh crore NPAs are from the power sector. Analysts at Bank of America Merrill Lynch (BofAML) recently said out of the stressed power assets, capacities of 7-22 GW have the potential of being taken over. BofAML also said that as much as 59-74 GW of capacity may not find bidders immediately, “and face risk of scrappage if referred to NCLT”, adding that this may impact Rs 3.4 lakh crore ($50 billion) of bank loans to the power sector and lead to write-offs worth Rs 2.6 lakh crore ($38 billion). It also noted that resolution under the IBC would require a high level of haircuts of more than 75% while disposing off non-viable power generating assets.