"The circular had outlined impractical conditions and timelines for resolution and also had an inbuilt bias against the existing owners of stressed projects," APP director-general Ashok Khurana said in a statement.
Welcoming the Supreme Court ruling quashing the RBI circular on resolution of stressed assets, the Association of Power Producers Tuesday said it will give some breather and flexibility to restructure their debt. The apex court quashed the RBI circular of February 12, 2018, that made it mandatory for banks to recognize even a one-day defaults by the borrowers and resolve the problem in 180 days failing which such accounts must be referred to NLCTs for resolution for large account of Rs 2,000 crore and above.
“The circular had outlined impractical conditions and timelines for resolution and also had an inbuilt bias against the existing owners of stressed projects,” APP director-general Ashok Khurana said in a statement. He further said with the order, stressed power companies and the lenders will have some breathing space as well as flexibility to restructure debts in a manner that ensures continuity and value maximization for lenders as well as for borrowers. This also provides the much-needed relief to power companies like RattanIndia, GMR, GVK, IL&FS and Coastal Energen among others which had been taken to NCLTs under the RBI circular, he said.
The order, handed out by a bench headed by justice RF Nariman said, “we declare the RBI circular ultra vires.” The details of the order are awaited. The RBI’s circular led 34 power producers to drag the regulator first to the Allahabad High Court, which asked RBI to offer some respite, but the RBI did not budge and challenged it in the Supreme Court last year.
Domestic rating agency Icra had estimated the total debt impacted due to the February 12 circular at around Rs 3.8 lakh crore across 70 large borrowers, of which Rs 2 lakh crore across 34 borrowers were in the power sector. The agency had also said 92 percent of this debt were classified as NPAs by banks as of March 2018 and also made provisions of over 25-40 percent on these accounts.
The association, through multiple representations to RBI and other authorities, had highlighted how the impugned circular did not take into account genuine difficulties faced by the developers and the underlying causes of stress. Khurana said APP had also highlighted the circular would not help either the developers or the lenders or the sector at large, and instead it would lead to significant erosion of value as the assets were stressed due to factors which would be faced even by new promoters, in case of change in ownership as fallout of the impugned circular.
“The verdict along with recent CCEA and union power and commerce ministries’ notifications implementing the recommendations of the empowered committee will provide the much- needed respite to all the affected parties and alleviate their stress,” Khurana said.