New Delhi: The Allahabad high court has ordered no action should be taken against power companies – on the basis of the Reserve Bank of India’s new guidelines on stressed assets – till the finance ministry holds a meeting with them.
This temporary relief, however, does not apply to wilful defaulters.
The court, which passed the order on a petition filed by lobby group Independent Power Producers Association of India, also requested finance secretary Hasmukh Adhia to explore the possibility of preventing stressed power plants from becoming non-performing assets (NPAs) in the wake of the central bank’s new framework for identification and resolution of bad loans.
The order also asks Adhia to hold a meeting of developers and concerned government officials this month itself.
Operative portion of the Allahabad HC order. Credit: The Wire
The court has based its order on the findings of a report by the parliament’s standing committee on energy that warned that as much as Rs 1.75 lakh crore of stressed private investment in power generation is at the risk of becoming dud assets. Significantly, the report was finalised before the RBI issued new guidelines. It was tabled in parliament in March this year.
The report identified 34 power plants as stressed, including Adani group’s West Korba, Essar’s Mahan, GMR’s Kamalnga and GVK’s Goindwal Saheb.
The Rs 1.75 lakh crore figure is an understatement given that Adani’s and Tata Power’s generating stations at Mundra, and Essar’s Salaya, all of which have been rendered unviable by the Supreme Court’s adverse judgement on compensatory tariff, are not on the list.
The RBI in February 2018 had introduced a new framework which abolished half a dozen loan-restructuring mechanisms and instead provided for a stringent 180-day timeframe for banks to agree on a resolution plan in case of a default. Failing that, they would have to initiate insolvency proceedings against the defaulter.
Promoters with defaulted loans of more than Rs 2,000 crore have been given six months’ time from March 1 to regularise their accounts or be ready to face bankruptcy proceedings.
The bad loan crisis of the Indian banking sector has aggravated despite the government and the RBI pushing lenders to go after corporate defaulters. Nearly a dozen state-owned banks are on the RBI’s watch-list for their abnormally high bad loans.
Lenders have taken big hair cuts on resolution of loans provided to a dozen corporate identified by the RBI for initiation of insolvency proceedings last June.
The parliamentary panel had found that these generating plants were hobbled by problems like coal shortage and developers’ failure to sign power purchase agreements (PPAs) and financing was not the only issue for them.
“The committee are of the considered view that providing finances, though vital, to the project is only one of the several factors essential for the commissioning of the project. As of now, commissioned plants worth of thousands of MW are under severe financial stress and are currently under special mention account (SMA-1/2) stage or on the brink of becoming NPA. This is due to fuel shortage, sub-optimal loading, untied capacities, absence of FSA and lack of PPA, etc,” the panel had observed
“These projects were commissioned on the basis of national need/ demand of electricity, availability of all other essentials required in this regard. However, due to unforeseen circumstances, these plants are suffering from cash flows, credit rating, interest servicing etc. Hence, simply applying the RBI guidelines mechanically by the banks, financial institutions, joint lender forums will push these plants further into trouble without any hope of recovery,” it added.