Breather for a sector choking with stressed assets

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‘Bankers will now get time to finalise the resolution plan for about 13 GW of power projects’

The Supreme Court’s order on Tuesday quashing the February 12 circular of the RBI has come as a huge breather to the power sector which is staring at 66,000 mega watts (MW) of stressed power assets worth ₹1.8 lakh crore.

“[The] SC order has provided great relief to the power sector’s stressed assets. This would provide time for bankers to finalise the resolution plan for about 13 GW of projects which are presently in their final stages, and a high-level empowered committee under the Chairmanship of the Cabinet Secretary to submit its report on corrective actions that the government intends to initiate to mitigate stress factors,” Ashok Khurana, director general, Association of Power Producers (APP), told .

The RBI circular had mandated banks to either immediately resolve all bad loans above ₹2,000 crore or file for insolvency resolution under the IBC.

“Over ₹40,000 crore of payments is due from the government owned discoms. If we get the money, issues of 13GW of power units will be resolved. Another 25-30 GW of issues can be resolved through discussion between the power producers and lenders,” Mr. Khurana added.

Cyril Shroff, managing partner, Cyril Amarchand Mangaldas, sees the SC judgment as a major development.

“This shows how proactive the judiciary has been. Whilst it’s too early to say, but if banks voluntarily still invoke IBC, the practical impact will be minimal,” Mr. Mangaldas said.

“The Supreme Court’s verdict, along with recent CCEA, MoP and MoC notifications implementing the recommendations of the high level empowered committee, will provide much needed respite and impetus to regulatory reform in the power sector,” Amit Kapur, joint managing partner, J. Sagar Associates, which represented the petitioners said. Besides power, other sectors like shipping, infrastructure, telecommunications and sugar also benefit from the judgment.

Welcoming the judgment, Vijay G. Kalantri, president, All India Association of Industries (AIAI) said, “The RBI circular had adversely impacted various resolution plans which were under process between lenders and debtors. The democratic resolution process of negotiation between lenders and debtors had come to a halt by this circular. Especially, infrastructure, shipping, power and other manufacturing companies were compelled to undergo insolvency proceedings under the NCLT and IBC.”

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