High Court Grants Temporary Relief To Power Firms From RBI’s Stricter Bad Loan Norms

The Allahabad High Court has ordered that no action be taken against the power companies on the basis of the central bank’s new stressed assets framework till the Finance Ministry hears their contention.

The court provided the temporary relief till a meeting between the companies and the ministry is held this month, according to the order passed by a bench headed by Chief Justice of Allahabad High Court Justice Dilip B Bhosale and Justice Suneet Kumar. The secretary at the ministry will communicate the date and time of the meeting to all, including the power producers who filed the petition. The relief does not apply to wilful defaulters.

The Reserve Bank of India, in its Feb. 12 circular, laid down strict timelines over which insolvency proceedings must be initiated. The banking regulator mandated that banks classify even a one-day delay in debt servicing as default. For accounts with an exposure of Rs 2,000 crore or more, banks will have to ensure that a resolution plan is in place within 180 days after a ‘default’.

The new norms on non-performing stressed assets may push power projects with a capacity of about 60,000-70,000 megawatts towards bankruptcy, the Association of Power Producers had said.

What The Petition Says

In its petition, the association said the circular resulted in withdrawal of earlier measures on as corporate and strategic debt restructuring — irrespective of stage — for different accounts.

It’s “unrealistic and will ultimately impact genuine defaulters or entrepreneur from further investment”, the petition said. It could also slow down an foreign investment in India’s power sector as the RBI has not made a distinction between genuine and wilful defaulters, the Association of Power Producers added.

Earlier in May, Power Ministry officials were to meet RBI counterparts to seek easier norms but the meeting was deferred. Power Minister RK Singh had said that he would seek a change in the new RBI norms that categorised an account as an NPA if there was a default of even a day in servicing debt. The Finance Ministry, however, had said it would not be possible to provide relief to one particular sector.

Watch this conversation with Harry Dhaul, Director General of Independent Power Producers Association.