Scrapping RBI’s Feb 12 circular on power NPAs a step backward for banks: Lalitabh Srivastava, Sharekhan
Market not likely to take kindly to nuanced approach for dealing with power producers, says Srivastava.
I as a former practicing banker know exactly how difficult it is for banks to lend to power producers when the power purchase agreements are honoured by SEBs. Does one need to read out the Riot Act to power producers or does one need to take a more nuanced view?
Clearly the Supreme Court is of the view -- as per my interpretation -- that one rule for everything will not be acceptable. You will have to have a nuanced approach for different categories. But that said, this is one step backwards for banks at least for the simple reason that there was this exigency on the part of borrowers also because of the Feb 12 circular and the kind of loan discipline that was coming back in the system will take a step back.
Power is a sector which suffers because of state involvement and political pricing. Now with elections approaching, we are going to see more and more political parties promising free power. Do you agree that as long as the borrower has not wilfully defaulted and the account is in trouble because SEBs are not paying, there is a case for nuanced approach?
Clearly the power that we have decided and a nuanced approach is the way forward but then each case will have to be decided separately which is going to be time consuming and which is going to add up to a lot more uncertainties both for the banks as well as for the investors. In that case, in this kind of scenario, this will add up to more uncertainty as each and every class of borrower is going to come up with fresh negotiations.
We have already seen that banks have been very reluctant in pressing the matter in terms of enforcing collaterals and enforcing of the recoveries historically also. Putting a perspective will add to more uncertainty and more delays. I do not think the market will like that.