Govt unlikely to issue directions to RBI on bad loans of power sector, says Finmin official

Ruling out invoking of exceptional powers to issue directions to RBI, a top finance ministry official said today that the central bank should take a pragmatic view on resolving stressed assets in the power sector.

The Allahabad High Court has turned down a petition by independent power produces challenging the February 12 circular of the Reserve Bank of India which specified that if a resolution was not found by August 27 these accounts should be sent to bankruptcy courts.

The court, however, asked the Centre to talk to the central bank to get some relief for the petitioners using the provisions of the RBI Act within 15 days.

"The government is unlikely to issue directions to RBI under Section 7 of RBI Act. The section can be invoked only in exceptional circumstances and the power asset issue is too small to enforce Section 7 of RBI Act," the official said.

The section empowers the central government to give directions to RBI, after consultation with the Governor of the Bank, as it may consider necessary in the public interest.

Instead, the official stressed, RBI should take a "pragmatic view" on the issue of stressed power assets on which insolvency proceedings could get initiated.

The official said that as per the estimates of the finance ministry, "only 10 companies" will get impacted since the court has refused to grant relief to the stressed power companies and hence they would be covered by RBI's 180 day circular.

"Of this, five can be revived and five will be restructured through Insolvency and Banking Code (IBC)," the official said.

In a bid to hasten the resolution of bad loans, RBI on February 12 abolished half a dozen loan restructuring schemes and instead provided for a strict 180-day timeline for banks to agree on a resolution plan in case of a default or else refer the account for bankruptcy.

Independent power producers had challenged the RBI order which mandated the lenders to initiate process under IBC if resolution plan is not approved by August 27.

Banks have an exposure of about Rs 1.74 lakh crore to the stressed power projects.