Allahabad HC denies interim relief to power cos on RBI stressed loan norms

Power producers had approached the Allahabad High Court to prevent lenders from initiating insolvency proceedings against them

The Allahabad High Court on Monday refused
to grant interim relief to power companies, which had filed pleas against the Reserve Bank of India (RBI) norms on stressed loans, TV channels reported. 

Public sector banks will have to take a haircut of 60-70 per cent on loans given to power companies. 

In February, the Reserve Bank of India (RBI) introduced new rules and a 180-day timeline for banks to recast loans once payments are missed, scrapping previous methods that could take an indefinite amount of time.

As reported by Bloomberg, companies that were delinquent when the norms came into force will run out of time on Monday, after which lenders must start moving to court to admit the cases under the Insolvency and Bankruptcy Code (IBC).    

According to the report, about 70 large companies with a debt of approximately Rs 3.6 trillion risked being taken to bankruptcy court following the RBI’s February directive, Ashish Gupta and Kush Shah, Mumbai-based analysts at Credit Suisse Group AG wrote in a June report. Further, in June, Credit Suisse had estimated that about 40 power projects were among companies at risk.  

To prevent lenders from initiating insolvency proceedings against them, power producers had approached the Allahabad High Court. 

The 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.