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RBI to FinMin: Feb 12 circular gives enough space for resolution of bad loans

The Reserve Bank today indicated to the finance ministry that its February 12 circular on new framework for stressed assets provides enough space for resolution of bad loans in the power sector, according to a senior official.

RBI made its stand clear at a stakeholders’ meeting, called by the ministry to discuss the circular, the implementation of which was stayed for the power sector by Allahabad High Court. The next hearing is on July 10.

During the meeting, a broad consensus emerged on setting up of a task force of eminent experts to analyse issues related to the sector including fuel supplies, power purchase agreements and delays in payment by discoms.

“RBI maintains that the circular does not stop the restructuring. Even if there is default the restructuring is possible within the time frame available,” said the official who attended the meeting said.

“What RBI is saying is that if you have resolution plan, maintain it, stick to it. The issues of the quality of equity along with availability of finances, willingness of the bankers to restructure and also these sectoral issues of the power sector as such… If they are all taken up together, their circular still gives them sufficient space to banks to restructure,” the official said.

The circular requires banks to finalise a resolution plan in case of a default on large accounts of Rs 2,000 crore and above within 180 days, failing which insolvency proceedings will have to be invoked against the defaulter.

During the meeting association of power producers (APP) and independent power producers association of India (IPPAI) were present and made their submission. The representatives of power, coal and oil ministries were also there.

Now, all stakeholder have got time to submit their views by Monday to the Financial Services Secretary who would firm up its views for further course of action.

During the meeting Rural Electricity Corporation (REC) representative also discussed about the Parivartan scheme for dealing with bad loans of power sector.

“We are looking for moratorium where sectoral issues can be resolved. We also suggested to set up a task force for power sector and there was broad consensus on that. However RBI sticks to its stand on their February 12 circular,” Director General IPPAI Harry Dhual told reporters after the meeting.

According to industry estimates, the stressed assets in the power sector are over 40 GW. They are facing with the problems such as non-signing of power purchase agreements, no coal linkages, delay in payments by discoms and regulatory clearances.

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