With the Reserve Bank of India refusing to the relax its norms for asset reconstruction companies (ARCs) exclusively for the one planned for the power sector, the government has asked the Rural Electrification Corporation (REC) to tweak the structure of the proposed ARC under the so-called Pariwartan scheme. This would mean that the ARC would have to make upfront payment of 15% of the value of the assets it assumes to the banks concerned and also maintain a 15% capital adequacy. Also, lenders will have to continue making provisions as per the stressed projects’ net asset value.
The Pariwartan scheme provides for a transitory warehousing of the viable lot of the stressed power assets and safeguarding the value of these assets from any immediate distress sale under the Insolvency and Bankruptcy Code. The idea is to keep the assets from deteriorating and auction them off when power demand picks up.
Under the model prepared by REC, the ARC under the Pariwartan scheme was to have a waiver from the 15% upfront payment and the capital adequacy norm; also, provisioning by banks were to be as per the assets’ net book value — which is the difference between the principal value and the provisioned value of the stressed assets.
It is estimated that about 11,400 MW of power projects can be parked in the Pariwartan ARC. In addition to operational projects, those where more than 80% of construction is complete are among these. According to sources, state-run NTPC has been approached to manage the regular operations and maintenance of the plants being warehoused. The sources added that it could take about four weeks to register an ARC under the Pariwartan scheme. The scheme was aimed to save power projects from being sold at very low rates, saving lenders from heavy haircuts that the National Company Law Tribunal (NCLT) process might result in.
Lenders will have to file for insolvency proceedings against stressed power assets worth about Rs 1.8 lakh crore by September 11 after the Allahabad High Court refusing to provide any interim relief to power companies from the RBI’s February 12 circular mandating early detection of bad loans.
However, under RBI norms, a stressed project can be taken out of NCLT and be parked in ARCs if 90% lenders agree to do so before receiving any expression of interest.