Banks rush to settle as RBI D-Day to resolve high value non-performing assets

Fourteen power plants with a total debt of close to Rs 60,000 crore could head to National Company Law Tribunal (NCLT), while at least in seven power plants with a debt of over Rs 40,000 crore change of management is planned, with RBI unlikely to extend the deadline to resolve high value non-performing assets.

Change in management is taking place after a one-time settlement in power companies such as Ratan India, Prayagraj Power Generation Company, Coastal Energen, SKS Power.

Asset reconstruction companies, existing power companies and private equity players are buying into these power companies. In some cases, restructuring is planned for companies like GMR Rajamundhry and Jhabhua Power, while GMR Chjattisgarh could head for the NCLT. The major power plants that will head to the NCLT will be Lanco Amarkantak, Meenakshi Energy, Jindal India Thermal Power Plant (JITPL)

The change of management is being worked out under State Bank of India (SBI)'s Samadhan Scheme. The 180-day deadline for the resolution of high-value NPAs of Rs 2,000 crore and above comes to a close on August 27. The central bank came out with a circular on February 12 that lifted special dispensation for one-time restructuring and said any restructuring would be classified as an NPA inviting higher provision.

However, bankers are not happy with the response to the power assets. "Investors willing to buy only 20% of the debt and unwilling to give equity stake to the banks," said a banker who has exposure in many of the power sector companies.

Until then, an account is restructured once could be still held as standard except in the case of commercial real estate loans. RBI had said that if banks do not find a resolution for these high-value NPAs by August 27, then the accounts have to be referred to the NCLT.

However, banks are hopeful that the Allahabad High Court will give a favourable judgment when it takes up the case this week, giving power sector a special dispensation allowing more time for resolution.

"Many of them are languishing for want of a power purchase agreement (PPA). Non-availability of coal after the coal licences were cancelled, aggressive tariffs by bidders in PPAs, defaults by discoms have all accentuated the problem for the power companies. Many of the plants are state-of-the-art and can be saved if some more time is given," a banker said.

As the deadline for the resolution of high-value NPAs looms over banks, RBI does not seem to be in a mood to relent.

RBI executive director Sudarshan Sen said the debate often is that RBI is giving too little time for banks to deal with stress. "But my question is, Rip Van Winkle, why were you sleeping?"

Sen was speaking at the CII conference on the Insolvency and Bankruptcy Code last week.

But it is easier said than done. High-value loans to power projects of Jaypee, Lanco, Essar, Monnet and GMR groups are among the 34 stressed power assets of over Rs 1.5 lakh crore. Gujarat-based power plants owned by Adani Power, Essar and Tata's Coastal Gujarat Power are likely to have a special restructuring plan from the government.

"The framework we introduced is sector-agnostic. There is no dearth of sectors you would say are stressed. But RBI's guidelines need to be sector-agnostic. That is all I would say," Sen said.

Most of the restructuring schemes of the RBI failed to achieve their purpose because banks were thinking how they could manage their balance-sheets and report profits rather than think of long-term viability of the project, according to Sen. "Banks need to move away from thinking what an account would do to its balance-sheet or its profitability for the quarter and focus on the long term."

According to RBI data, total NPAs of the banking system were Rs 9.61 lakh crore at the end of 2017-18. Of this, Rs 7.03 lakh crore of loans were from industry and Rs 85,344 crore were from agriculture and allied sectors, according to the data submitted by minister of finance Shiv Pratap Shukla in Rajya Sabha last month.