Stressed power assets: HC refuses to stay RBI’s Feb circular, to hear plea on Aug 2

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New Delhi | Updated: July 19, 2018 5:18:34 AM

The Allahabad High Court on Wednesday refused to stay the Reserve Bank of India’s February circular that had mandated early detection and time-bound resolution of stressed assets.

HC has said until it hears the case, no coercive action can be taken against power producers that have petitioned the court against the circular . (Representational image: Reuters)

The Allahabad High Court on Wednesday refused to stay the Reserve Bank of India’s February circular that had mandated early detection and time-bound resolution of stressed assets, sources said. However, the HC has said until it hears the case, no coercive action can be taken against power producers that have petitioned the court against the circular .

For its part, the government sought two weeks to file its final report/stand with the court, saying it’s still a work in progress, said sources. The RBI has stuck to its ground and refused to give any special relief to the power sector, partly due to apprehension that any such move could spur demand for similar relief from other sectors.

An official source said while the finance ministry has sent its inputs — detailing the submission by various stakeholders — to the power ministry, a final report conveying the government’s stand is still being deliberated upon.

The finance ministry held a stakeholders’ meeting last month after being instructed by the HC to see if the matter could be resolved. The court has now fixed August 2 as the next date of hearing.

The RBI’s February circular requires banks to finalise a resolution plan in case of a default on large accounts of Rs 2,000 crore and above within 180 days (irrespective of sectors), failing which insolvency proceedings would have to be invoked against the defaulter.

Since the deadline for the resolution of the first set of such cases is end-August, power producers have been seeking urgent relief. The circular also stipulates a one-day default rule on term loans, which mandates treating a borrower who misses repayments as a defaulter the very next day.

Earlier, the finance ministry had favoured a relief for all sectors. Sources had said the ministry was of the opinion that lenders be given a year to finalise the resolution plan, instead of just six months, especially for infrastructure projects. Seeking special relief, power players have argued that most of the factors that had caused the bad loans to pile up are beyond their control. A fifth of Rs 10.3 lakh crore of gross non-performing assets in the banking system belong to the power sector.

The Association of Power Producers wanted an extension of the August 2018 deadline for formulation, approval and implementation of resolution plans for a lot of stressed assets to February 2019 by expanding the 180 day period to 365 days.

Power minister RK Singh earlier said the time frame to implement a resolution plan was ‘impractical’.

APP says the new RBI guidelines have replaced the erstwhile joint lenders’ forum with a system that warrants unanimous agreement of all lenders to ratify any resolution plan, making matters more time-consuming.

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