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HomeIndiaGovernanceSupreme Court gives temporary relief to cash-strapped power sector producers

Supreme Court gives temporary relief to cash-strapped power sector producers

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Power producers had previously challenged RBI’s revised debt servicing rules, which they allege can push nearly 75 gigawatts of projects into bankruptcy.

India’s Supreme Court Tuesday refused to halt a lower court from hearing cash-strapped power producers seeking protection from bankruptcy proceedings.

The verdict of the two-judge bench headed by Rohinton F Nariman ensures that lenders won’t be able to initiate insolvency proceedings against power producers who may have defaulted on loan repayments unless they are categorized as wilful defaulters. Power producers had challenged Reserve Bank of India’s revised debt servicing rules, which they say can push nearly 75 gigawatts of projects into bankruptcy.

India’s banks – which have some of the highest stressed asset ratios globally – are under mounting pressure from regulators to clean up their books as the government attempts to revive loan growth and boost the economy. Loans worth at least $38 billion are at risk of being written off in the power sector, more than four-times the hit they took in the previous tide of bad loans from the steel sector, Bank of America Merrill Lynch estimates.

The central bank’s revised guidelines issued in mid-February, which call for initiation of insolvency proceedings after a single day’s payment default, are too stringent for a sector that’s battling cash flow issues because of delayed payments by state distribution utilities and late regulatory clearances for cost related tariff hikes, Association of Power Producers said in a letter to central bank Governor Urjit Patel in March.

In its last hearing, the Allahabad High Court had ordered lenders not to initiate bankruptcy proceedings against power producers. The Supreme Court agreed to examine the RBI’s plea to transfer the case from the high court to the top court on Aug 28.”- Bloomberg

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