Power producers are among the parties challenging the Central bank’s February 12 circular that made it mandatory for lenders to classify a loan account as stressed if dues are delayed even by a dayMumbai: As the Supreme Court is slated to hear arguments on whether the Reserve Bank of India’s (RBI) February 12 order is applicable across industries, banks risk adding as much as Rs 17,000 crores worth of non-performing assets in the power sector. Power producers are among the parties challenging the Central bank’s February 12 circular that made it mandatory for lenders to classify a loan account as stressed if dues are delayed even by a day. The bankers had to mandatorily approach the bankruptcy court or the National Company Law Tribunal (NCLT) if a restructuring was not put in place within 180 days of default.
After the RBI’s one-day default norm was contested by these parties, the SC in September stopped proceedings against power, shipping and sugar companies.
Power sector hit hardest
Last year, the RBI circular, which did away with past methods for recasting bad loans, shook up firms and banks alike. The power sector was among those which were hit the hardest with the government identifying 34 plants as stressed with an outstanding debt of close to Rs 1.8 trillion.
If the RBI directive is upheld, several of these power producers would be pushed into the insolvency court immediately as banks are compelled to dial-up provisions. A judgment is likely to be delivered in the coming weeks, the apex court has said.
PSU Watch is a business news brand of 27 Frames Communications LLP. It places the spotlight on PSUs, Governance, Bureaucracy, Defence and Public Policy as the sector traverses through a period of radical change.