Stressed power assets: 180-day deadline breach not end of road, say bankers

Banks may breach the 180-day deadline of August 27 for firming up a resolution plan on big-ticket stressed accounts. 

But that is not the end of the road as some aspects may give them a breather, bankers and experts feel. 

The much-awaited Allahabad High Court judgment in case of stressed power assets, less time taken for actual admission to bankruptcy court National Company Law Tribunal (NCLT) and the option to withdraw a case referred to NCLT with the consent of 90 per cent of lenders could ease the burden on lenders, especially public sector banks. 

State Bank of India (SBI), the country’s largest lender, on Friday said about seven-eight power sector projects worth Rs 170 billion are likely to be resolved soon, as lenders are nearing a consensus on them.

There are about 34 stressed power projects and the combined value of their outstanding loans is about Rs 1.74 trillion. These are part of 70 cases (each with exposure of above Rs 20 billion) being discussed for resolution within the deadline. 

The Reserve Bank of India (RBI) has maintained that there is no need to grant an extension sought by power companies for completing resolution proceedings of stressed assets. It contended that government policies are partly responsible for stressed loans in the power sector. 

The banking regulator has also requested the Supreme Court to club all appeals in various high courts that challenge the RBI’s February 12 circular.

Senior PSB executives said while efforts are on to stay within the deadline, it is not a matter of worry. With amendment of the Insolvency and Bankruptcy Code (IBC), it is possible to withdraw a case referred to the NCLT with the consent of 90 per cent of the lenders. This provision will be used only in cases where lenders are confident of resolving them.

Moreover, even by assuming that many cases head to the bankruptcy court, lenders will have breathing period for making provision as it takes time for reference and admission of a case. Many cases (referred to NCLT at behest of the RBI) are yet to be admitted. Bankers said there is also the technical point of the RBI coming out late with a list of designated rating agencies to vet the resolution plan. While the timline of 180 days began on March 1, the RBI came with a list in May. So, there may be some leeway in the time frame.

A lot depends on the Allahabad High Court (HC) judgment where the order was reserved on stressed power assets. “Efforts have been made by the banks to complete the restructuring process within the 180-day period but not many appear to be getting to the finishing line. Banks will have to be ready to file insolvency applications on these over the next few days,” said Sanjeev Krishan, Private Equity and Deals Leader at PwC India.

Saurav Kumar, Partner at Indus Law, said, “What I understand from the HC proceedings is that there should be an independent decision by banks or financial creditors to choose to proceed with IBC or not. It completely depends on the liquidation value of the company and what the banks derive from the assets.” 

The courts and tribunals are still setting the precedents on various aspects, which is why there has been delays in the process and admission of cases. Now, we are looking at all the extremes. So, at some point, there will be an equilibrium,” Kumar said.

Resolution verdict 

• Allahabad HC verdict in stressed power assets expected on August 27 
• Time taken for admission in NCLT 
• Option to withdraw NCLT case with 90% lenders consent.
• RBI petition in SC to club appeals against circular
• Loans at stake Rs 3.4 trillion