The Allahabad High Court (HC) on Monday refused to provide relief to privately-owned stressed power projects from the Reserve Bank of India’s (RBI’s) February 12 circular.
The circular had directed lenders to undertake insolvency resolution of defaulting companies within a strict timeline. The central bank had also put in the condition of one-day default, asking banks to identify stress even when repayments were overdue by a day. Resolution proceedings would have to be completed in 180 days. The deadline ended on Monday.
The court has, however, allowed companies to seek the legal route with their individual grievances. Monday’s order sets the clock ticking on 34 stressed assets that have a cumulative debt of Rs 1.74 trillion. A dozen of these are expected to face insolvency proceedings now.
The Independent Power Producers Association of India (IPPAI) had filed a petition in the Allahabad HC seeking exemption from the RBI notification. The court then directed the Ministry of Finance to hold a meeting with all stakeholders, including the Ministry of Power, the RBI, and private power companies, and to prepare a report. The report was the Centre’s submission in the HC.
The Centre said it would seek regulatory relief for a dozen power projects with an overall debt exposure of around Rs 1 trillion. It also constituted a high-powered committee (HPC) under Cabinet Secretary P K Sinha. Representatives from the ministries of railways, finance, power, coal, and key sector lenders are part of the committee.
The court has directed this committee should come out with a resolution plan in two months from its constitution (on July 29). It has asked the Centre to start consultations with the RBI under Section 7 of the RBI Act and conclude it in 15 days.
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According to Section 7, the central government may issue directions to the RBI as it may “consider necessary in public interest” after consultation with the RBI Governor. However, a senior government official said that Section 7 of the RBI Act only relates to the management of the central bank and not policy issues. The government has so far never invoked Section 7 to issue directions to the RBI.
The court asked the bankers to move the RBI under the Section 7 of the Insolvency Bankruptcy Code for getting their resolution plan approved or the deadline for it extended from the central bank. It has also asked all the lenders and the government to identify and resolve the stressed assets under Sections 35AA and 35AB of the Banking Regulations Act.
Section 35A of the Banking Regulation Act, 1949, enables the Union government to authorise the RBI to direct banking companies to resolve specific stressed assets by initiating insolvency resolution process.
Around 11 projects of State Bank of India (SBI) and three of the Power Finance Corporation (PFC) have been identified for a resolution plan. These would have to start the resolution process soon.
Punjab National Bank (PNB) is working with SBI on a resolution plan for some of these stressed power assets, industry sources said. The PFC has the highest exposure of Rs 300 billion, followed by PNB (Rs 279billion) and SBI (Rs 240billion).
SBI has looked at 13-14 accounts that would entail changes in management, investment, etc. Of these, seven to eight accounts are close to getting consensus among the banks, SBI Managing Director Arijit Basu had said last week.
Banks will have the additional burden of provision, depending on the haircut they have to take for each of the case, public sector bank executives pointed out.
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Lenders have decided to take four cases to the bankruptcy court. There is also room for banks to withdraw case referred to the National Company Law Tribunal, with the consent of 90 per cent of lenders, another SBI executive said.
The power ministry has suggested two schemes for resolution of stress in the sector — Samadhaan, by SBI and PFC, and Pariwartan from the Rural Electrification Corporation (REC) which has suggested setting up an asset restructuring company (ARC). Samadhaan is about identifying 10 assets and taking over “sustainable debt” and then selling the asset to some ARC.
“Eighteen stressed power assets are in the NCLT, eight have been resolved, and 11 were identified for Samadhaan. Four of these have not found to be viable and will be referred to the NCLT,” Rajnish Kumar, chairman, SBI, said earlier in the day. The Supreme Court tomorrow will hear a transfer petition filed by the RBI to get all the cases filed against its February 12 circular by all affected sectors to a single bench in Delhi.
The circular had directed lenders to undertake insolvency resolution of defaulting companies within a strict timeline. The central bank had also put in the condition of one-day default, asking banks to identify stress even when repayments were overdue by a day. Resolution proceedings would have to be completed in 180 days. The deadline ended on Monday.
The court has, however, allowed companies to seek the legal route with their individual grievances. Monday’s order sets the clock ticking on 34 stressed assets that have a cumulative debt of Rs 1.74 trillion. A dozen of these are expected to face insolvency proceedings now.
The Independent Power Producers Association of India (IPPAI) had filed a petition in the Allahabad HC seeking exemption from the RBI notification. The court then directed the Ministry of Finance to hold a meeting with all stakeholders, including the Ministry of Power, the RBI, and private power companies, and to prepare a report. The report was the Centre’s submission in the HC.
The Centre said it would seek regulatory relief for a dozen power projects with an overall debt exposure of around Rs 1 trillion. It also constituted a high-powered committee (HPC) under Cabinet Secretary P K Sinha. Representatives from the ministries of railways, finance, power, coal, and key sector lenders are part of the committee.
The court has directed this committee should come out with a resolution plan in two months from its constitution (on July 29). It has asked the Centre to start consultations with the RBI under Section 7 of the RBI Act and conclude it in 15 days.
ALSO READ: Stressed power assets: 180-day deadline breach not end of road, say bankers
ALSO READ
SBI fixes plans for six stressed power assets; RBI deadline ends Monday
Allahabad HC denies interim relief to power cos on RBI stressed loan norms
Stressed power assets: Is there any clear and ultimate 'Samadhan'?
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Bad Bank: Solution or more problems?
According to Section 7, the central government may issue directions to the RBI as it may “consider necessary in public interest” after consultation with the RBI Governor. However, a senior government official said that Section 7 of the RBI Act only relates to the management of the central bank and not policy issues. The government has so far never invoked Section 7 to issue directions to the RBI.
The court asked the bankers to move the RBI under the Section 7 of the Insolvency Bankruptcy Code for getting their resolution plan approved or the deadline for it extended from the central bank. It has also asked all the lenders and the government to identify and resolve the stressed assets under Sections 35AA and 35AB of the Banking Regulations Act.
Section 35A of the Banking Regulation Act, 1949, enables the Union government to authorise the RBI to direct banking companies to resolve specific stressed assets by initiating insolvency resolution process.
Around 11 projects of State Bank of India (SBI) and three of the Power Finance Corporation (PFC) have been identified for a resolution plan. These would have to start the resolution process soon.
Punjab National Bank (PNB) is working with SBI on a resolution plan for some of these stressed power assets, industry sources said. The PFC has the highest exposure of Rs 300 billion, followed by PNB (Rs 279billion) and SBI (Rs 240billion).
SBI has looked at 13-14 accounts that would entail changes in management, investment, etc. Of these, seven to eight accounts are close to getting consensus among the banks, SBI Managing Director Arijit Basu had said last week.
Banks will have the additional burden of provision, depending on the haircut they have to take for each of the case, public sector bank executives pointed out.
ALSO READ: $52 billion of India loans under scrutiny on RBI's bankruptcy deadline
Lenders have decided to take four cases to the bankruptcy court. There is also room for banks to withdraw case referred to the National Company Law Tribunal, with the consent of 90 per cent of lenders, another SBI executive said.
The power ministry has suggested two schemes for resolution of stress in the sector — Samadhaan, by SBI and PFC, and Pariwartan from the Rural Electrification Corporation (REC) which has suggested setting up an asset restructuring company (ARC). Samadhaan is about identifying 10 assets and taking over “sustainable debt” and then selling the asset to some ARC.
“Eighteen stressed power assets are in the NCLT, eight have been resolved, and 11 were identified for Samadhaan. Four of these have not found to be viable and will be referred to the NCLT,” Rajnish Kumar, chairman, SBI, said earlier in the day. The Supreme Court tomorrow will hear a transfer petition filed by the RBI to get all the cases filed against its February 12 circular by all affected sectors to a single bench in Delhi.
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