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Power firms welcome RBI notification on stressed assets

The Association of Power Producers was one of the parties that have fought a legal battle for 14 months with the RBI over a February 12, 2018 circular.

, ET Bureau|
Jun 08, 2019, 08.31 AM IST
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Power
The circular has not given any special treatment to power companies, which had sought a different treatment to help the sector revive in 18-24 months.
Power companies have welcomed a fresh notification issued by the Reserve Bank of India on stressed assets, calling it a workable framework.

“There is no mandatory referral to the Insolvency and Bankruptcy Code, the discretion of referral or bank-led resolution now rests on bank boards through inter-creditors agreements. Consent thresholds — 60% by number and 75% by value, as compared to earlier 100% by number — are practical and will help resolution of bad loans,” Association of Power Producers (APP) director-general Ashok Khurana said. “The circular provides for a way forward for dealing with dissenting bankers too. Overall, a holistic and workable framework."

The APP was one of the parties that have fought a legal battle for 14 months with the RBI over a February 12, 2018 circular, which had put very stringent guidelines for banks to treat stressed assets, including compulsory referral to the bankruptcy court on defaults.

A senior power ministry official said under the new directive, there was a disincentive of 20-35% additional provisioning requirement for lenders if the resolution plan deadlines were not met. And, there are also incentives for filing cases under the IBC — reversal of 50% provisioning when the case is filed in the National Company Law Tribunal and 100% reversal when the NCLT admits it under the IBC. "These, coupled with the 75% shareholders' consent clause, make it a better notification for resolutions," he said.

However, another official said the circular missed emphasis on early resolution of debt crises.

The circular has not given any special treatment to power companies, which had sought a different treatment to help the sector revive in 18-24 months. The APP has also asked that after restructuring of an account, it should be upgraded if the borrower made regular payments for one year or paid 5% of the outstanding debt.

The new circular has relaxed compulsory referral to the bankruptcy court. It has restored the discretion to bank boards over the resolution path. Loan accounts that defaulted for 30 days will be moved to resolution, against one-day default mandated in the previous circular.

Lenders have to enter into intercreditor agreement to govern the conduct of parties. In case of loan restructuring with an existing promoter, the account becomes substandard but can be upgraded after one year or once 10% of the principal is repaid, whichever is later. The quashed circular had put this requirement at 20% of principal.
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