The Allahabad High Court on Monday refused to give interim relief to power producers that are facing insolvency proceedings as the Reserve Bank of India's debt resolution plan deadline ended on Monday. During a hearing, the court refused to pass an interim relief order to these companies and asked financial creditors to initiate insolvency proceedings against the defaulting power companies. However, reports suggest the RBI has given 15 more days to banks to hire legal counsels and resolution professionals, which also gives them more time to resolve these NPAs.
As per the RBI's February-12 circular, the over 70 defaulting companies had been given six months starting from March, following which financial creditors were supposed to move the NCLT against them. The RBI circular came into effect on March 1 and the 180-day deadline concludes on August 27.
The high court has also directed the centre to take a suitable action in the next 15 days under Section 7 of the RBI Act. It has also asked the high-level empowered committee to decide within two months on a resolution in consultation with the Reserve Bank of India, reported ET.
As per the Section 7 of the RBI Act, the Central government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the bank, consider necessary in the public interest. Experts believe that going through insolvency won't address the core issues plaguing the power sector -- like slippage, delayed payments, no power purchase agreements, etc -- and would lead to nothing but a sizeable haircut to the lenders.
There are about 34 stressed power projects and the combined value of their outstanding loans is about Rs 1.74-lakh crore. Banks believe the insolvency process could depreciate the value of these assets and want more time to resolve them. They are also trying their best to find out solutions before such NPAs are referred to NCLT. The State Bank of India recently said about 7-8 power sector projects, including KSK Mahanadi, Prayagraj Power, JP Power Venture, etc, worth Rs 17,000 crore are expected to be resolved soon as lenders are nearing consensus on these projects.
Despite its earlier guidelines, the regulator gave a 15-day window to the banks to appoint legal counsels and resolution professionals. And, in the extended time period, if any of the stressed assets are resolved, it would not be referred to the law tribunal for insolvency proceedings.
(Edited by Manoj Sharma)