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Enough scope in RBI circular for resolution of bad loans: Finance Minister Arun Jaitley

While the power sector officials demanded relaxation from the RBI from its February 12 circular, which mandates a one-day default norm, the RBI is understood to have turned down the suggestion.

By: ENS Economic Bureau | New Delhi | Published: June 22, 2018 12:25:48 am
Enough scope in RBI circular for resolution of bad loans: Finance Minister Arun Jaitley Finance Minister Arun Jaitley (File photo)

The finance ministry held a crucial meeting with stakeholders of the power sector on Thursday to discuss ways to address issues faced by stressed power plants. The meeting, which was held under the direction of the Allahabad High Court, remained inconclusive and more discussions will be held in the coming week, a senior finance ministry official said.

Apart from power producers, top officials from coal, power, and petroleum ministries and the Reserve Bank of India attended the meeting. While the power sector officials demanded relaxation from the RBI from its February 12 circular, which mandates a one-day default norm, the RBI is understood to have turned down the suggestion.

Sources said the RBI’s view is that restructuring of loans is possible within the resolution framework specified in the February circular, and that power projects were stuck due to a number of other issues and not merely because of the banking regulatory norms.

“RBI maintains that circular does not stop restructuring. Even if there is default, restructuring is possible within a certain time frame,” the government official said after the meeting. During the meeting, Rural Electrification Corporation made a suggestion of setting up an Asset Management Company that will take over stressed power projects with a view to revive them over time.

The Allahabad High Court had in a ruling on May 31 directed the finance ministry to hold a meeting of stakeholders in June to find out whether the issues of stressed power projects facing insolvency proceedings could be resolved. It also provided reprieve to a clutch of power projects under financial stress and facing the threat of being pushed into insolvency proceedings by ordering that no action be taken in their cases under the Reserve Bank of India’s Feb. 12 circular. The court’s ruling is applicable to only the petitioners under the banner of Independent Power Producers’ Association of India.

The RBI, through a notification on February 12, withdrew all its earlier instructions dealing with resolution of stressed assets and replaced them with the revised framework for resolution of stressed assets. The new framework asked banks to recognize loan default from day one and to initiate steps for resolution in case of default.

Industry representatives explained various issues that were affecting the power projects such as shortage of natural resources including coal gas, and the RBI norm which will lead to initiation of insolvency for many projects.

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