About 70 companies with a combined debt of approximately ₹3.6-lakh crore face insolvency proceedings, with the deadline imposed by the Reserve Bank of India ending on Monday. These companies did not get any legal relief as the Allahabad High Court declined to stay the RBI’s February circular instructing banks to take all large accounts above ₹2,000 crore into bankruptcy if a resolution plan is not agreed upon in 180 days.
The companies, mostly from the power sector, will now be hoping that the government invokes a special provision to intervene and direct the RBI to dilute the order. Companies that are part of Independent Power Producers Association of India, which had filed the plea with the Allahabad High Court, can also pursue legal recourse independently. The other option would be to try and cobble together a resolution plan in the next two weeks as banks have a 15-day window to resolve the stressed assets.
Setback for power companies
Bankers said that 14 assets in the power sector have already been referred to the Bankruptcy Court, but 12 assets have the possibility of being recast. Within this, seven have already found bidders.
“In addition to the 15-day window available, we will get a couple of months more before the assets are admitted by the court. So, there is time available for resolving the assets,” said a banker. Of the 70 stressed assets, 34 firms from the power sector accounted for debt of about ₹1.70-lakh crore.
If there is no resolution in the next two weeks and if the Government does not intervene, the accounts will be referred to the NCLT to start insolvency proceedings.
“With lenders close to resolving stressed assets aggregating ₹70,000 crore in the power sector, the government may intervene to convince the RBI to give these assets a breather,” said a banking industry executive.
However, Rajkiran Raj G, Managing Director and CEO, Union Bank of India, said the court ruling will not impact the resolution process. “Most of these accounts are classified as NPAs, there is no recognition issue as of now.”