Parliamentary panel worries about the power sector post RBI’s revised framework on NPA’s

Reserve bank of India recently issued a revised framework for the resolution of stressed/non-performing assets. A Lok-Sabha committee was called to discuss the consequences of the framework on the electricity sector. The committee was of the opinion that the electricity sector has been forced towards Non-Performing Assets post the revised framework. As per the guidelines, one of the objectives of the revised framework is to ensure prompt action to provide relief to the stress in a borrower’s account as soon as the default takes place. However, the committee was of the opinion that a solution was indeed necessary but not at the cost of affecting the electricity sector majorly. A  37th report of the standing committee on energy on the subjects of stressed/Non Performing Assets in the electricity sector was presented post extensive discussion in order to resolve the issue of NPA in the electricity sector as per the extant RBI guidelines and other legal/ financial/ statutory provisions applicable at that time.

The Committee focussed on 34 coal-based thermal power plants which were categorized as ‘stressed’ due to issues such as:

  • Non-availability of Fuel:

– Cancellation of coal block.

– Projects set up without Linkage.

  • Lack of enough PPA by states
  • The inability of the Promoter to infuse the equity and working capital
  • Contractual/Tariff related disputes
  • Issues related to Banks/Financial Institutions (FIs).
  • Delay in project implementations leading to cost overrun.
  • Aggressive bidding by developers in PPA.

As per the Revised Framework, the extant instructions on resolution of stressed assets such as Framework for Revitalizing Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) were withdrawn. The Joint Lenders’ Forum (JLF) as an institutional mechanism for resolution of stressed accounts has also been discontinued. Now, all accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework.

Although the new guidelines have been termed as ‘harmonized’ and ‘simplified’ generic framework, yet they are far from being so. Prior to these guidelines, an asset was classified as NPA if a loan or an advance where interest or installment of principal remains overdue for a period of 90 days in respect of term loan. Similarly, stressed assets were accounts where there has been a delay in payment of interest and/or payment as against the repayment schedule on account of the financial difficulties of the borrower. Under the previous framework, failure of an asset to serve its debt obligation within the prescribed time was taken to be indicative of a developing stress of potential NPA and consequently, corrective measures of various grades i.e. rectification, restructuring, and recovery were the options keeping in view the totality of the situation.

However, the new regime has let go with all such measures and any failure beyond the duration of SMA (Special Mention Accounts) is supposed to directly and immediately invoke the provisions of a resolution plan, making the revival extremely difficult. The committee, therefore, recommended that in the interest of the economy in general and the Electricity Sector in particular, the revised guidelines should be “harmonized and simplified” in the real sense.

 

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