The Allahabad High Court, hearing a petition by the Independent Power Producers Association of India (IPPAI) against insolvency proceedings, has directed the finance ministry to conduct a meeting with stakeholders and work out a possible solution in a month.
Insolvency proceedings should be avoided unless the company was a wilful defaulter, till a meeting was conducted by the finance ministry, the court said.
“As of now, commissioned plants worth thousands of megawatts are under severe financial stress and on the brink of becoming non-performing assets. This is due to fuel shortage, sub-optimal loading and untied capacities. These projects were commissioned on the basis of national need/demand for electricity, availability of all other essentials required in this regard.
However, due to unforeseen circumstances, these plants are suffering. Hence, simply applying the RBI guidelines mechanically by banks, financial institutions and joint lender forums will push these plants further into trouble,” according to the court.
In February, the Reserve Bank of India mandated banks to classify even a day’s delay in debt servicing as default. The notification mandates resolution proceedings for stressed loan accounts to be completed within 180 days.
The IPPAI also felt that the RBI notification was arbitrary, irrational, discriminatory and violated Articles 14 and 19(1)(g) of the Constitution, since the stressed assets in the sector were partly due to other factors.
“If after due deliberations with developers, the ministries of power, coal and finance were able to draw up a time-bound action plan, the RBI could consider the necessary dispensations based on the action plan,” said A K Khurana, director-general, Association of Power Producers.
- Rs 4,000 bn: Value of stressed assets in the power sector
- 80,000 Mw capacity of the stressed assets
- Among lenders, PFC has the highest exposure of Rs 587 bn
- It is followed by SBI (exposure of Rs 297 bn) and PNB (Rs 279 bn)