New Delhi: The Supreme Court will hear the challenge to the RBI’s circular regarding bad loans on 28 November. The matter was mentioned by former Attorney General, Mukul Rohatgi appearing for power companies before a bench headed by Justice Rohinton F. Nariman.
SC to hear challenge to RBI’s circular on bad loans on 28 November
The Allahabad high court on 27 August had denied interim relief to power companies, which had challenged the RBI’s 12 February circular on bad loans.
The central bank, in its circular, had tightened the norms for settling non-performing loans by allowing lenders to initiate insolvency proceedings against defaulters, besides setting timelines for resolving bad loans. Although banks were given several options to arrive at a resolution plan, they had 180 days to do so. The central bank also introduced the concept of a one-day default, under which banks have to identify incipient stress even when repayments are overdue by a day.
The court had asked the central government to decide and take action within 15 days, under Section 7 of the Reserve Bank of India Act. It also asked the high-level empowered committee to decide on resolutions within two months in consultation with the central bank.
Section 7 of the Reserve Bank of India Act states that the Union government, in public interest, can give directions to the central bank from time to time.
The National Democratic Alliance (NDA) government had in July set up an empowered committee, headed by cabinet secretary P.K. Sinha, who was earlier India’s power secretary.
The country’s power sector has been one of its highly stressed industry, with close to ₹1 trillion of loans having turned bad or been recast. Around 66 gigawatts (GW) of capacity is facing various degrees of financial stress, including 54.8GW of coal-based power (44 assets), 6.83GW of gas-based power (nine assets) and 4.57GW of hydropower (13 assets).
Lenders also have an exposure of around ₹3 trillion to these assets, following slow electricity procurement over the last three-four years. According to the RBI, total outstanding loans of scheduled commercial banks to the power sector, including renewables, stood at ₹5.65 trillion in March 2018