RBI deadline ends: Many power(less) plants may fall into bankruptcy

The next 15 days could see power plants belonging to Jindal and telecom tower firm GTL and petrochemical maker JBF Industries heading to bankruptcy courts as the central bank-set deadline for resolution came to an end at midnight on Monday, but banks need not set aside more funds for these as they have already done so.
Nearly 40 companies which have defaulted on loans of more than Rs 2,000 crore but escaped getting into the resolution process, would be victims of the Reserve Bank of India’s February 12 circular that gave 180 days to banks to resolve defaults. That ended on August 27. Now, banks have a 15-day window to begin the legal process to recover their funds.

“Although the 180-day deadline ends on August 27, banks will not be rushing to the tribunals on August 28. The regulator has given banks 15 days to appoint legal counsels and resolution professionals,” said a top banker who did not want to be identified. “During these 15 days, if a solution is put in place for any of the accounts and approved by all lenders, those accounts would not be referred to the court.” The RBI on February 12 overhauled the resolution process for firms in default.

It junked numerous schemes which were keeping defaulters floating, but actually not reviving those firms for a long term. It set a time limit of 180 days for firms in default and those which were about to default for a resolution. If missed, the accounts will be tried under bankruptcy laws.

The power sector, which has around 34 stressed accounts with Rs 1.5 lakh crore of loans, is one of the biggest worry for banks since they feel that a resolution under bankruptcy code would erode the true value of the assets. Of these, 18 accounts are already referred to the National Company Law Tr i bu n a l (NCLT) — the dedicated court for bankruptcy cases. Lenders plan to refer some more accounts to NCLT such as Ind-Barath Energy (Utkal), Lanco Anpara and Jindal India Thermal Power.

But the RBI has threatened banks with severe consequences for failing to meet its new norms. “Any failure on the part of lenders in meeting the prescribed timelines or any actions by lenders with an intent to conceal the actual status of accounts or evergreen the stressed accounts, will be subjected to stringent supervisory, enforcement actions as deemed appropriate by the Reserve Bank, including, but not limited to, higher provisioning on such accounts and monetary penalties,” the February 12 notification said.

Lenders led by State Bank of India have been working round the clock on resolution plans for KSK Mahanadi, Prayagraj Power, JP Power Venture, SKS Power, Jhabua Power and Coastal Energen. Speaking at an event in Mumbai, Rajnish Kumar, chairman of SBI, said seven cases in the power sector are likely to be resolved outside of bankruptcy court. He said that four are approved by SBI and the remaining four would be approved in the next two days. However, it is not clear as yet if boards of all banks will approve the plan which would require at least a 50% haircut on an average.