Banks decide to refer all stressed power loans to insolvency courts

Banks have decided to refer massive bad loans in the power sector to bankruptcy courts, three people aware of the development said, dashing hopes of an early resolution through bilateral deals.

The lenders decided against quicker one-time settlements and outright sales, partly due to a lack of consensus and partly to avoid possible legal scrutiny of such decisions at a later date, according to the people cited above, who spoke on condition of anonymity.
“We were informed today by lenders that they have decided to refer all stressed power assets to the National Company Law Tribunal (NCLT),” said an executive with a company, which had submitted a bid for a distressed power plant.

“The NCLT process follows a legal framework, it’s monitored by the RBI (Reserve Bank of India) and a resolution under the Insolvency and Bankruptcy Code will protect bankers from scrutiny later. I believe that lawyers to several banks have asked them to refer all power assets to the NCLT,” this person added.

On 12 February, RBI had issued a circular setting a 180-day timeline starting 1 March for banks to resolve large corporate defaults, failing which all these companies must be taken to bankruptcy courts. At ?1.74 trillion, power accounts for a large chunk of these bad loans.
Of the 18 stressed power assets that RBI had identified, banks had initially decided to refer 11 cases to NCLT and pursue quicker resolution—either debt restructuring or outright sale of these assets to individual bidders—for the remaining seven. On Thursday, after meeting power ministry officials, banks decided to refer these seven to NCLT as well.

“The deadline for resolving these accounts has already passed. Banks have not been able to resolve them outside the NCLT and some lenders such as SBI and PNB have been advised by their legal counsel to admit the power firms in the third list for resolution under the NCLT,” said the second of the three people cited before. “The sale process that they had started in some of these assets, we were told that it is going to be stopped.”

These seven power assets are believed to be healthier among the set of bad loans and have either power purchase agreements with their respective state utilities or fuel supply agreements in place. Till the end of last month, banks had been readying to sell Coastal Energen to Edelweiss Asset Reconstruction Co., SKS Power to Singapore-based Agritrade Resources and Jhabua Power to Worldwide Impex India Ltd, while JSW Energy and Tata Power have been engaging in a bidding war to win Prayagraj Power.
Still, banks now believe they might find better value for some of these assets before NCLT. “Banks were also told that some foreign players, especially a few Chinese power firms, might express interest in these assets if they are referred to NCLT. If needed, banks can withdraw the case against these accounts at a later stage through consensus,” the first of the three people cited before said.

“State Bank of India has finalized the resolution plan in some of these cases. But we are awaiting the approval from other lenders. It’s possible that many of the cases will go to NCLT,” an SBI official said.

Source: Livemint

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