Government unlikely to invoke section 7 to direct RBI on power companies

New Delhi: The government is not likely to use its powers to issue directions to the Reserve Bank of India (RBI) to seek relief for stressed power plants, a top finance ministry official said.
"The government is unlikely to issue directions to RBI under Section 7 of RBI Act. The section can be invoked only in exceptional circumstances and the power asset issue is too small to enforce Section 7," the official said.

Policy makers are not keen on setting a precedent on use of Section 7 on such an issue.

The Allahabad High Court had in its ruling earlier this week told the government to consider issuing a directive to RBI against the February 12 circular on how lenders should deal with stressed assets.

Independent power producers had challenged the RBI circular on recognition of non-performing loans, the effect of which is that if a resolution was not found by August 27, stressed power accounts would have to be sent to bankruptcy courts.

The court turned down request for interim relief and instead asked the government to approach RBI within 15 days.

Under Section 7 of the Reserve Bank of India Act, 1934, “the central government may from time to time give such directions to the bank as it may, after consultation with the governor of the bank, consider necessary in the public interest”.

This has not been invoked so far by the government.


ET had reported on Wednesday that a cabinet secretary-led committee on power sector will consider the issue before the government takes any decision.

“We have a committee headed by the cabinet secretary to get into this issue. That committee will examine that subject,” department of economic affairs secretary Subhash Chandra Garg said.

The official said RBI should take a"pragmatic view" on stressed power assets, adding that according to government estimates, only about 10 companies would need to go for insolvency resolution after the court did not grant relief.

Five of these can be revived while five will have to be restructured through Insolvency and Bankruptcy Code (IBC), the official said.

In its February 12 circular, the RBI had abolished all restructuring scheme and instead put in a new framework for resolution of stressed assets. In the case of large loans of Rs 2,000 crore or more, stressed accounts have to referred for insolvency proceedings if they are not resolved within 180 days.

Including the 15 days for introducing and counting from February 12, the deadline reaches to August 27 for the power projects that were in default as on that date.

Banks have an exposure of about Rs 1.74 lakh crore to stressed power projects.