New Delhi: The Supreme Court decision to annul the Reserve Bank of India’s (RBI’s) February 12 circular of last year on resolving bad debts is set to benefit several stressed companies which were staring at insolvency proceedings. According to rating agency ICRA, as of September 2018, nearly 70 borrowers with bad debts worth over Rs 3.8 lakh crore, could have eventually being referred for insolvency proceedings as a result of provisions of RBI’s February 12, 2018, circular.
While the court’s order will have no impact on the classification of a stressed account as a non-performing asset (NPA or bad loan) or on provisions that banks need to set aside on this account, it will give more time and discretion to banks on finalizing a resolution plan.
The RBI circular mandated lenders to initiate resolution or restructuring of loans of Rs 2,000 crore and above within six months from the date of default, on which the court found that the central bank had acted beyond its legal powers. After the expiry of the 180 days, the defaulting borrowers, under the circular struck down by the apex court, had to mandatorily face proceedings under the Insolvency and Bankruptcy Code (IBC).
One of the biggest beneficiaries of the Supreme Court order may be the financially troubled Jet Airways, which has a debt of around Rs 10,000 crore. As part of the resolution plan, the State Bank of India (SBI)-led lenders consortium has taken over 50.5 percent stake in the airline, with a view to selling the shares to a potential buyer in the coming months.
Under the nullified RBI circular, banks would have had to finalize a resolution plan for the airline by June if they wanted to avoid insolvency proceedings. With the Court’s quashing of the circular, the bankers have now more time to seek a resolution. Among the large power companies, which might have faced the heat, is the Lalitpur Power Generation Co, the Shishir Bajaj Group’s 1,980 MW thermal power project in Lalitpur, Uttar Pradesh which had been struggling for several years.
Multiple efforts were made by the lenders to find a resolution for the account but no headway had bee made. Similarly, the KSK Mahanadi Power Co, a former subsidiary of KSK Energy Ventures, has a total debt of Rs 15,702 crore. Delayed repayments from state-owned power distributors led to cash flow strains for the company and it could not purchase sufficient coal. (IANS)
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