The RBI in February mandated banks to classify even a day’s delay in debt servicing as default. The notification mandates resolution proceedings for stressed accounts be completed in 180 days. Around 80,000 megawatts (Mw) of power capacity is staring at debt default due to regulatory and systemic issues.
Despite several requests for relaxing the deadline for the power sector, the RBI has refused to make a special dispensation. Minister of State for Power R K Singh had said the RBI resolution for bad loans was “impractical and demanded changes”.
The lenders are designing a scheme for bailing out stressed assets. The scheme may be emulated at proceedings in the National Company Law Tribunal (NCLT). The banks are expected to share the scheme with the PMO.
The plan being drafted by key banks will identify sustainable debt in an asset and rework the debt-equity at a certain assumed cost for project completion.
The banks are looking at several agencies, including the National Investment and Infrastructure Fund, to share the equity investment with them.
“As for seeking funds to finance a new entity, getting domestic funding is tough. So, one option is to approach global special situation funds and multilateral agencies,” said a banking executive.
Among the lenders, PFC has the highest exposure. It is staring at 14,000 Mw of projects that might face insolvency proceedings. SBI has debt exposure of around Rs 290 billion, followed by PNB with Rs 270 billion. Axis Bank, IDBI, and ICICI bank might also face heat from power generation assets.
Sources said the lenders wished to rope in government-owned power undertakings such as NTPC for operations and maintenance (O&M) of projects. The lenders believe a better option is to have NTPC on board as an equity partner.
Sources in NTPC said the company was not comfortable with investing any equity in stressed assets. However, it is open to taking up O&M contracts.
A similar model is being worked out by PFC. It is planning to form a joint venture with other lenders, such as NTPC and BHEL, to bid for assets that land in the NCLT.
A senior public sector bank executive said banks have time till August-end to firm up a plan to bail out the stressed power companies.